IDEAS home Printed from https://ideas.repec.org/p/bol/bodewp/wp996.html
   My bibliography  Save this paper

Information and Online Reviews

Author

Listed:
  • O. Loginova
  • A. Mantovani

Abstract

Online review aggregators, such as TripAdvisor, HotelClub and OpenTable help consumers identify the products and services that best match their preferences. The goal of this study is to understand the impact of online review aggregators on firms and consumers. We adopt Salop s circular city model in which consumers initially do not know the locations of the firms in the product space. The firms decide whether or not to be listed on an online review aggregator s website and choose their prices. When a firm resorts to the aggregator, its location and price become observable to the consumers who visit the website. We consider two different scenarios, depending on the possibility for online firms to offer discounts to the consumers who book online. We show that in equilibrium not all firms will go online some will remain offline. Online firms attract more customers than their offline counterparts due to reduced mismatch costs, but face a tougher price competition. Comparing the equilibrium prices, profits and the number of firms that go online across the scenarios, we derive interesting conclusions from the private and the social standpoints.

Suggested Citation

  • O. Loginova & A. Mantovani, 2015. "Information and Online Reviews," Working Papers wp996, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp996
    as

    Download full text from publisher

    File URL: http://amsacta.unibo.it/4177/1/WP996.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hilger, James & Rafert, Greg & Villas-Boas, Sofia Berto, 2007. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach," CUDARE Working Papers 6055, University of California, Berkeley, Department of Agricultural and Resource Economics.
    2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    3. Greg Shaffer & Z. John Zhang, 2002. "Competitive One-to-One Promotions," Management Science, INFORMS, vol. 48(9), pages 1143-1160, September.
    4. Aguirre Pérez, Iñaki, 2011. "Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian," IKERLANAK 2011-54, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    5. Chrysanthos Dellarocas, 2006. "Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms," Management Science, INFORMS, vol. 52(10), pages 1577-1593, October.
    6. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    7. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-327, May.
    8. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    9. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
    10. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva‐Risso, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-519, December.
    11. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
    12. Steven M. Shugan, 2004. "The Impact of Advancing Technology on Marketing and Academic Research," Marketing Science, INFORMS, vol. 23(4), pages 469-475.
    13. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    14. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    15. Michael Anderson & Jeremy Magruder, 2012. "Learning from the Crowd: Regression Discontinuity Estimates of the Effects of an Online Review Database," Economic Journal, Royal Economic Society, vol. 122(563), pages 957-989, September.
    16. Inaki Aguirre, 2012. "Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian," Chapters, in: Rosario Laratta (ed.), Social Welfare, IntechOpen.
    17. Krishnan S. Anand & Ravi Aron, 2003. "Group Buying on the Web: A Comparison of Price-Discovery Mechanisms," Management Science, INFORMS, vol. 49(11), pages 1546-1562, November.
    18. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    19. Zheyin (Jane) Gu & Ying Xie, 2013. "Facilitating Fit Revelation in the Competitive Market," Management Science, INFORMS, vol. 59(5), pages 1196-1212, May.
    20. James Hilger & Greg Rafert & Sofia Villas-Boas, 2011. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach in the Retail Wine Market," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1289-1296, November.
    21. Benjamin Edelman & Sonia Jaffe & Scott Duke Kominers, 2010. "To Groupon or Not to Groupon: The Profitability of Deep Discounts," Harvard Business School Working Papers 11-063, Harvard Business School, revised Jan 2014.
    22. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    23. Xiaoqing Jing & Jinhong Xie, 2011. "Group Buying: A New Mechanism for Selling Through Social Interactions," Management Science, INFORMS, vol. 57(8), pages 1354-1372, August.
    24. David A. Reinstein & Christopher M. Snyder, 2005. "The Influence Of Expert Reviews On Consumer Demand For Experience Goods: A Case Study Of Movie Critics," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 27-51, March.
    25. Eyal Biyalogorsky & Eitan Gerstner & Barak Libai, 2001. "Customer Referral Management: Optimal Reward Programs," Marketing Science, INFORMS, vol. 20(1), pages 82-95, August.
    26. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    27. Oksana Loginova, 2007. "Real and Virtual Competition," Working Papers 0715, Department of Economics, University of Missouri.
    28. Yeon‐Koo Che & Ian Gale, 1997. "Buyer Alliances and Managed Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 175-200, March.
    29. Anindya Ghose & Panagiotis G. Ipeirotis & Beibei Li, 2012. "Designing Ranking Systems for Hotels on Travel Search Engines by Mining User-Generated and Crowdsourced Content," Marketing Science, INFORMS, vol. 31(3), pages 493-520, May.
    30. Bharat N. Anand & Ron Shachar, 2011. "Advertising, the matchmaker," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 205-245, June.
    31. Rajiv Lal & Miklos Sarvary, 1999. "When and How Is the Internet Likely to Decrease Price Competition?," Marketing Science, INFORMS, vol. 18(4), pages 485-503.
    32. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, in: E-commerce, pages 501-519, National Bureau of Economic Research, Inc.
    33. repec:bla:jindec:v:49:y:2001:i:4:p:501-19 is not listed on IDEAS
    34. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    35. Dina Mayzlin, 2006. "Promotional Chat on the Internet," Marketing Science, INFORMS, vol. 25(2), pages 155-163, 03-04.
    36. Jinhong Xie & Steven M. Shugan, 2001. "Electronic Tickets, Smart Cards, and Online Prepayments: When and How to Advance Sell," Marketing Science, INFORMS, vol. 20(3), pages 219-243, June.
    37. Peitz, Martin & Waldfogel, Joel, 2012. "The Oxford Handbook of the Digital Economy," OUP Catalogue, Oxford University Press, number 9780195397840.
    38. Oksana Loginova, 2009. "Real And Virtual Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 319-342, June.
    Full references (including those not matched with items on IDEAS)

    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. Oksana Loginova & Andrea Mantovani, 2019. "Price competition in the presence of a web aggregator," Journal of Economics, Springer, vol. 126(1), pages 43-73, January.
    2. Amedeo Piolatto, 2015. "Online booking and information: competition and welfare consequences of review aggregators," Working Papers 2015/11, Institut d'Economia de Barcelona (IEB).
    3. Fay, Scott, 2008. "Selling an opaque product through an intermediary: The case of disguising one's product," Journal of Retailing, Elsevier, vol. 84(1), pages 59-75.
    4. Eymann, Torsten (Ed.), 2007. "Tagungsband zum Doctoral Consortium der WI 2007 [WI2007 Doctoral Consortium Proceedings]," Bayreuth Reports on Information Systems Management 24, University of Bayreuth, Chair of Information Systems Management.
    5. Yuxin Chen & Ganesh Iyer & V. Padmanabhan, 2002. "Referral Infomediaries," Marketing Science, INFORMS, vol. 21(4), pages 412-434, May.
    6. Oksana Loginova, 2007. "Real and Virtual Competition," Working Papers 0715, Department of Economics, University of Missouri.
    7. Anindya Ghose & Avi Goldfarb & Sang Pil Han, 2013. "How Is the Mobile Internet Different? Search Costs and Local Activities," Information Systems Research, INFORMS, vol. 24(3), pages 613-631, September.
    8. Nestor Duch-Brown & Bertin Martens, 2014. "Consumer benefits from the EU Digital Single Market: evidence from household appliances markets," JRC Working Papers on Digital Economy 2014-03, Joint Research Centre (Seville site).
    9. Backus, Matthew R. & Podwol, Joseph Uri & Schneider, Henry S., 2014. "Search costs and equilibrium price dispersion in auction markets," European Economic Review, Elsevier, vol. 71(C), pages 173-192.
    10. Michael R. Baye & John Morgan, 2009. "Brand and Price Advertising in Online Markets," Management Science, INFORMS, vol. 55(7), pages 1139-1151, July.
    11. Zhang, Xubing & Jiang, Bo, 2014. "Increasing Price Transparency: Implications of Consumer Price Posting for Consumers' Haggling Behavior and a Seller's Pricing Strategies," Journal of Interactive Marketing, Elsevier, vol. 28(1), pages 68-85.
    12. Zhuang, Hejun & Popkowski Leszczyc, Peter T.L. & Lin, Yuanfang, 2018. "Why is Price Dispersion Higher Online than Offline? The Impact of Retailer Type and Shopping Risk on Price Dispersion," Journal of Retailing, Elsevier, vol. 94(2), pages 136-153.
    13. Ramnath K. Chellappa & Raymond G. Sin & S. Siddarth, 2011. "Price Formats as a Source of Price Dispersion: A Study of Online and Offline Prices in the Domestic U.S. Airline Markets," Information Systems Research, INFORMS, vol. 22(1), pages 83-98, March.
    14. Michael R. Baye & John Morgan, 2005. "Probabilistic Patents," Microeconomics 0504004, University Library of Munich, Germany.
    15. Chuan He & Yuxin Chen, 2006. "Research Note—Managing e-Marketplace: A Strategic Analysis of Nonprice Advertising," Marketing Science, INFORMS, vol. 25(2), pages 175-187, 03-04.
    16. Xiaoqing Jing & Jinhong Xie, 2011. "Group Buying: A New Mechanism for Selling Through Social Interactions," Management Science, INFORMS, vol. 57(8), pages 1354-1372, August.
    17. Anindya Ghose & Yuliang Yao, 2011. "Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets," Information Systems Research, INFORMS, vol. 22(2), pages 269-288, June.
    18. Edgardo Arturo Ayala Gaytán, 2009. "Social network externalities and price dispersion in online markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-28, November.
    19. Ya-Ling Chiu & Jiangze Du & Jying-Nan Wang, 2022. "The Effects of Price Dispersion on Sales in the Automobile Industry: A Dynamic Panel Analysis," SAGE Open, , vol. 12(3), pages 21582440221, August.
    20. Oksana Loginova, 2009. "Real And Virtual Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 319-342, June.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:bol:bodewp:wp996. 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: Dipartimento Scienze Economiche, Universita' di Bologna (email available below). General contact details of provider: https://edirc.repec.org/data/sebolit.html .

    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.