Pricing for the Stars - Dynamic Pricing in the Presence of Rating Systems

Andre Stenzel, Christoph Wolf () and Peter Schmidt ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Maintaining good ratings increases the profits of sellers on online platforms. We analyze the role of strategic pricing for ratings management in a setting where a monopolist sells a good of unknown quality. Higher prices reduce the value for money, which on average worsens reviews. However, they also induce only consumers with a strong taste for the product to purchase, which on average improves reviews. We provide conditions under which the latter effect dominates so that ratings management leads to upward pressure on prices. This upward pressure increases in the sensitivity of the aggregate rating to incoming reviews. As a consequence, recent changes to rating systems may have harmed consumers by increasing long-run price levels.

Keywords: Rating Systems; Dynamic Pricing; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: D21 D82 L15 (search for similar items in EconPapers)
Pages: 33
Date: 2020-02
New Economics Papers: this item is included in nep-com and nep-pay
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Citations: View citations in EconPapers (2)

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Working Paper: Pricing for the Stars Dynamic Pricing in the Presence of Rating Systems (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_143v2

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