IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v31y2022i10p3840-3858.html
   My bibliography  Save this article

Effects of online reviews and competition on quality and pricing strategies

Author

Listed:
  • Cui Zhao
  • Xiaojun Wang
  • Yongbo Xiao
  • Jie Sheng

Abstract

By providing useful product information from the perspective of other buyers, online product/service reviews can help customers better evaluate the true quality of products and judge whether a product is a good fit for them. Based on online reviews, firms may improve product quality and/or adjust selling price to compete with other firms. In this study, we investigate the effects of online reviews on product quality and pricing decisions in a duopoly market that consists of two competing firms. Specifically, we consider a stylized two‐period model and study the equilibrium decisions based on a Nash game framework. In the base scenario, the selling prices are exogenously given, and the firms decide on the product quality across two periods to optimize their respective profits. We study the equilibrium decisions in the static setting (in which the product quality remains the same across the two periods) and in the dynamic setting (in which the product quality can be improved in the second period), respectively. In the extended scenario, the selling prices can be endogenously determined as well. For each scenario, we compare the equilibrium decisions under dynamic competition with those under static competition through theoretical analysis and numerical experiments, which uncover some interesting managerial insights regarding the impact of online reviews under competition.

Suggested Citation

  • Cui Zhao & Xiaojun Wang & Yongbo Xiao & Jie Sheng, 2022. "Effects of online reviews and competition on quality and pricing strategies," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3840-3858, October.
    • Handle: RePEc:bla:popmgt:v:31:y:2022:i:10:p:3840-3858
    DOI: 10.1111/poms.13791
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.13791
    Download Restriction: no
    File URL: https://libkey.io/10.1111/poms.13791?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nan Yang & Renyu Zhang, 2022. "Dynamic pricing and inventory management in the presence of online reviews," Production and Operations Management, Production and Operations Management Society, vol. 31(8), pages 3180-3197, August.
    2. Tülin Erdem & Michael P. Keane & Baohong Sun, 2008. "A Dynamic Model of Brand Choice When Price and Advertising Signal Product Quality," Marketing Science, INFORMS, vol. 27(6), pages 1111-1125, 11-12.
    3. Caulkins, Jonathan P. & Feichtinger, Gustav & Grass, Dieter & Hartl, Richard F. & Kort, Peter M. & Seidl, Andrea, 2017. "Interaction of pricing, advertising and experience quality: A dynamic analysis," European Journal of Operational Research, Elsevier, vol. 256(3), pages 877-885.
    4. Liu, Huihui & Lei, Ming & Deng, Honghui & Keong Leong, G. & Huang, Tao, 2016. "A dual channel, quality-based price competition model for the WEEE recycling market with government subsidy," Omega, Elsevier, vol. 59(PB), pages 290-302.
    5. Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2014. "Online Product Reviews: Implications for Retailers and Competing Manufacturers," Information Systems Research, INFORMS, vol. 25(1), pages 93-110, March.
    6. Ilan Lobel & Jigar Patel & Gustavo Vulcano & Jiawei Zhang, 2016. "Optimizing Product Launches in the Presence of Strategic Consumers," Management Science, INFORMS, vol. 62(6), pages 1778-1799, June.
    7. Chen, Yubo & Fay, Scott & Wang, Qi, 2011. "The Role of Marketing in Social Media: How Online Consumer Reviews Evolve," Journal of Interactive Marketing, Elsevier, vol. 25(2), pages 85-94.
    8. Kevin Chung & Keehyung Kim & Noah Lim, 2020. "Social Structures and Reputation in Expert Review Systems," Management Science, INFORMS, vol. 66(7), pages 3249-3276, July.
    9. Wang, Xiaojun & Li, Dong, 2012. "A dynamic product quality evaluation based pricing model for perishable food supply chains," Omega, Elsevier, vol. 40(6), pages 906-917.
    10. Sulin Ba & Yuan Jin & Xinxin Li & Xianghua Lu, 2020. "One Size Fits All? The Differential Impact of Online Reviews and Coupons," Production and Operations Management, Production and Operations Management Society, vol. 29(10), pages 2403-2424, October.
    11. Chakraborty, Tulika & Chauhan, Satyaveer S. & Ouhimmou, Mustapha, 2019. "Cost-sharing mechanism for product quality improvement in a supply chain under competition," International Journal of Production Economics, Elsevier, vol. 208(C), pages 566-587.
    12. Ming Hu & Xi Li & Mengze Shi, 2015. "Product and Pricing Decisions in Crowdfunding," Marketing Science, INFORMS, vol. 34(3), pages 331-345, May.
    13. He, Qiao-Chu & Chen, Ying-Ju, 2018. "Dynamic pricing of electronic products with consumer reviews," Omega, Elsevier, vol. 80(C), pages 123-134.
    14. Soumya Mukhopadhyay & V Kumar & Amalesh Sharma & Tuck Siong Chung, 2022. "Impact of review narrativity on sales in a competitive environment," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2538-2556, June.
    15. Baojun Jiang & Bicheng Yang, 2019. "Quality and Pricing Decisions in a Market with Consumer Information Sharing," Management Science, INFORMS, vol. 65(1), pages 272-285, January.
    16. Kostyra, Daniel S. & Reiner, Jochen & Natter, Martin & Klapper, Daniel, 2016. "Decomposing the effects of online customer reviews on brand, price, and product attributes," International Journal of Research in Marketing, Elsevier, vol. 33(1), pages 11-26.
    17. Nikolay Archak & Anindya Ghose & Panagiotis G. Ipeirotis, 2011. "Deriving the Pricing Power of Product Features by Mining Consumer Reviews," Management Science, INFORMS, vol. 57(8), pages 1485-1509, August.
    18. Yubo Chen & Jinhong Xie, 2008. "Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix," Management Science, INFORMS, vol. 54(3), pages 477-491, March.
    19. Kilsun Kim & Dilip Chhajed, 2002. "Product Design with Multiple Quality-Type Attributes," Management Science, INFORMS, vol. 48(11), pages 1502-1511, November.
    20. Xie, Gang & Wang, Shouyang & Lai, K.K., 2011. "Quality improvement in competing supply chains," International Journal of Production Economics, Elsevier, vol. 134(1), pages 262-270, November.
    21. David Godes, 2017. "Product Policy in Markets with Word-of-Mouth Communication," Management Science, INFORMS, vol. 63(1), pages 267-278, January.
    22. Dina Mayzlin, 2006. "Promotional Chat on the Internet," Marketing Science, INFORMS, vol. 25(2), pages 155-163, 03-04.
    23. Dmitri Kuksov & Ying Xie, 2010. "Pricing, Frills, and Customer Ratings," Marketing Science, INFORMS, vol. 29(5), pages 925-943, 09-10.
    24. Yang Liu & Juan Feng & Xiuwu Liao, 2017. "When Online Reviews Meet Sales Volume Information: Is More or Accurate Information Always Better?," Information Systems Research, INFORMS, vol. 28(4), pages 723-743, December.
    25. Cui Zhao & Yao Zhang, 2019. "Dynamic quality and pricing decisions in customer-intensive service systems with online reviews," International Journal of Production Research, Taylor & Francis Journals, vol. 57(18), pages 5725-5748, September.
    26. Man Yu & Laurens Debo & Roman Kapuscinski, 2016. "Strategic Waiting for Consumer-Generated Quality Information: Dynamic Pricing of New Experience Goods," Management Science, INFORMS, vol. 62(2), pages 410-435, February.
    27. Yu‐Hung Chen & Baojun Jiang, 2021. "Dynamic Pricing and Price Commitment of New Experience Goods," Production and Operations Management, Production and Operations Management Society, vol. 30(8), pages 2752-2764, August.
    28. Juan Feng & Xin Li & Xiaoquan (Michael) Zhang, 2019. "Online Product Reviews-Triggered Dynamic Pricing: Theory and Evidence," Information Systems Research, INFORMS, vol. 30(4), pages 1107-1123, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cui Zhao & Xiaoshuai Peng & Zhendong Li, 2023. "The influence of online customer reviews on two-stage product strategy in a competitive market," Annals of Operations Research, Springer, vol. 326(1), pages 411-503, July.
    2. Matsuhisa, Hiroshi & Matsubayashi, Nobuo, 2024. "Alliance formation between a platform retailer and competing manufacturers in sharing consumer data for product development," International Journal of Production Economics, Elsevier, vol. 267(C).
    3. Peng, Shuxia & Li, Bo & Zheng, Wei, 2024. "Impact of consumer valuation updating in a competitive software market," Omega, Elsevier, vol. 123(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cui Zhao & Xiaoshuai Peng & Zhendong Li, 2023. "The influence of online customer reviews on two-stage product strategy in a competitive market," Annals of Operations Research, Springer, vol. 326(1), pages 411-503, July.
    2. Qiao, Haike & Su, Qin, 2021. "Distribution channel and licensing strategy choice considering consumer online reviews in a closed-loop supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).
    3. Juan Feng & Xin Li & Xiaoquan (Michael) Zhang, 2019. "Online Product Reviews-Triggered Dynamic Pricing: Theory and Evidence," Information Systems Research, INFORMS, vol. 30(4), pages 1107-1123, December.
    4. Shushu Xie & Yingxue Zhao & Lin Zhao & Xingyuan He, 2024. "Do Online Reviews Always Incentivise Remanufacturers to Improve Quality in a Competitive Environment?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 26(67), pages 903-903, August.
    5. Wang, Jiayun & Shum, Stephen & Feng, Gengzhong, 2022. "Supplier’s pricing strategy in the presence of consumer reviews," European Journal of Operational Research, Elsevier, vol. 296(2), pages 570-586.
    6. Yang, Wenjuan & Zhang, Jiantong & Yan, Hong, 2022. "Promotions of online reviews from a channel perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).
    7. Sun, Miao & Chen, Jing & Tian, Ye & Yan, Yufei, 2021. "The impact of online reviews in the presence of customer returns," International Journal of Production Economics, Elsevier, vol. 232(C).
    8. Young Kwark & Gene Moo Lee & Paul A. Pavlou & Liangfei Qiu, 2021. "On the Spillover Effects of Online Product Reviews on Purchases: Evidence from Clickstream Data," Information Systems Research, INFORMS, vol. 32(3), pages 895-913, September.
    9. Yabing Jiang & Hong Guo, 2015. "Design of Consumer Review Systems and Product Pricing," Information Systems Research, INFORMS, vol. 26(4), pages 714-730, December.
    10. Guo, Qiaozhen & Chen, Ying-Ju & Huang, Wei, 2022. "Dynamic pricing of new experience products with dual-channel social learning and online review manipulations," Omega, Elsevier, vol. 109(C).
    11. Bikram P. Ghosh & Michael R. Galbreth, 2023. "The weight of the crowd, social information credibility, and firm strategy," Production and Operations Management, Production and Operations Management Society, vol. 32(4), pages 1079-1095, April.
    12. Minnema, Alec & Bijmolt, Tammo H.A. & Gensler, Sonja & Wiesel, Thorsten, 2016. "To Keep or Not to Keep: Effects of Online Customer Reviews on Product Returns," Journal of Retailing, Elsevier, vol. 92(3), pages 253-267.
    13. Yabing Jiang & Hong Guo, 2012. "Design of Consumer Review Systems and Product Pricing," Working Papers 12-10, NET Institute.
    14. Li, Yimeng & Xiong, Yu & Mariuzzo, Franco & Xia, Senmao, 2021. "The underexplored impacts of online consumer reviews: Pricing and new product design strategies in the O2O supply chain," International Journal of Production Economics, Elsevier, vol. 237(C).
    15. Agnieszka Zablocki & Bodo Schlegelmilch & Michael J. Houston, 2019. "How valence, volume and variance of online reviews influence brand attitudes," AMS Review, Springer;Academy of Marketing Science, vol. 9(1), pages 61-77, June.
    16. Dominik Gutt, 2018. "In the Eye of the Beholder? Empirically Decomposing Different Economic Implications of the Online Rating Variance," Working Papers Dissertations 40, Paderborn University, Faculty of Business Administration and Economics.
    17. Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2014. "Online Product Reviews: Implications for Retailers and Competing Manufacturers," Information Systems Research, INFORMS, vol. 25(1), pages 93-110, March.
    18. Itay P. Fainmesser & Dominique Olié Lauga & Elie Ofek, 2021. "Ratings, Reviews, and the Marketing of New Products," Management Science, INFORMS, vol. 67(11), pages 7023-7045, November.
    19. Jianqing Chen & Zhiling Guo & Jian Huang, 2022. "An Economic Analysis of Rebates Conditional on Positive Reviews," Information Systems Research, INFORMS, vol. 33(1), pages 224-243, March.
    20. Zhang, Tao & Li, Gang & Cheng, T.C.E. & Lai, Kin Keung, 2017. "Welfare economics of review information: Implications for the online selling platform owner," International Journal of Production Economics, Elsevier, vol. 184(C), pages 69-79.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:31:y:2022:i:10:p:3840-3858. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.