Journal
OMEGA-INTERNATIONAL JOURNAL OF MANAGEMENT SCIENCE
Volume 109, Issue -, Pages -Publisher
PERGAMON-ELSEVIER SCIENCE LTD
DOI: 10.1016/j.omega.2022.102592
Keywords
Pricing; Dual-channel social learning; Review manipulations; Strategic consumers; Bayesian rule
Funding
- NSFC (National Natural Science Foundation of China) [71731009, 72061127002, 2018WZDXM020]
- Hong Kong Research Grants Council (RGC) [16503918, 16502219]
- Shenzhen Key Research Base in Arts & Social Sciences (Intel-ligent Management & Innovation Research Center-IMIRC, SUSTech)
- National Laboratory of Mechanical Manufacture Systems, XJTU
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This study examines the impact of online reviews on firms and consumers, focusing on the manipulation of first-party and third-party reviews. Through social learning, consumers' evaluations of products affect the ultimate equilibrium outcomes. The study finds that more accurate dual-channel reviews benefit both the firm and consumers, but different levels of review manipulations can lead to different outcomes.
Online reviews normally come from two distinct sources: first-party reviews are reviews published (by consumers) on a firm's own platform, and third-party reviews are ratings and feedback generated on a third-party website (e.g., a social media profile). Manipulations of first-party reviews could affect their credibility. We consider a two-period monopoly dynamic pricing problem with dual-channel social learn-ing (SL) and truncated review manipulations (i.e., a firm may delete extremely low and high ratings). We propose a critical measure for SL outcome (SLO) that gauges consumers' quality evaluation through SL and drives equilibrium outcomes. We first consider the case of a firm with myopic consumers. Without manipulations, we find that the optimal policy typically consists of increasing and decreasing prices re-garding a threshold structure of SLO. The optimal price, expected profit and consumer surplus are mono-tone in SLO. More accurate dual-channel reviews benefit the firm and its consumers. With manipulations, we characterize the optimal price path in closed form using a novel index of manipulated SLO. Manipu-lations yield a higher expected profit increasing with manipulated SLO, but can induce three outcomes: benefiting all consumers, or benefiting some but hurting the others, or hurting all. More first-party re-views always facilitate the firm, but can benefit consumers only under weak manipulations. However, more third-party reviews can be detrimental for the firm but conducive for consumers under strong ma-nipulations. We also discuss the robustness of our main qualitative insights and some extensions with additional salient features. Research implications and future directions are discussed finally.(c) 2022 Elsevier Ltd. All rights reserved.
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