Strategic Waiting for Consumer-Generated Quality Information: Dynamic Pricing of New Experience Goods

43 Pages Posted: 11 Dec 2013

See all articles by Man Yu

Man Yu

Hong Kong University of Science & Technology (HKUST)

Laurens Debo

Dartmouth College - Tuck School of Business

Roman Kapuscinski

University of Michigan, Stephen M. Ross School of Business

Date Written: September 1, 2013

Abstract

In this paper, we study the impact of consumer-generated quality information (e.g., consumer reviews) on a firm's dynamic pricing strategy in presence of strategic consumers. Such information is useful, not only to the consumers that have not yet purchased the product, but also to the firm. The informativeness of the consumer-generated quality information depends, however, on the volume of consumers who share their opinions and, thus, depends on the initial sales volume. Hence, via its initial price, the firm not only influences its revenue but also controls the quality information flow over time. The firm may either enhance or dampen the quality information flow via increasing or decreasing initial sales. The corresponding pricing strategy to steer the quality information flow is not always intuitive. Compared to the case without consumer-generated quality information, the firm may reduce the initial sales and lower the initial price. Interestingly, the firm may get strictly worse off due to the consumer-generated quality information. Even when the firm benefits from consumer-generated quality information, it may prefer less accurate information. Finally, consumer surplus can also decrease due to the consumer-generated quality information, contrary to the conventional wisdom that word-of-mouth should help consumers.

Keywords: Strategic consumer behavior, price skimming, two-sided learning

Suggested Citation

Yu, Man and Debo, Laurens and Kapuscinski, Roman, Strategic Waiting for Consumer-Generated Quality Information: Dynamic Pricing of New Experience Goods (September 1, 2013). Chicago Booth Research Paper No. 13-78, Available at SSRN: https://ssrn.com/abstract=2334423 or http://dx.doi.org/10.2139/ssrn.2334423

Man Yu

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Laurens Debo (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Roman Kapuscinski

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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