Template-Type: ReDIF-Paper 1.0
Title: Pricing for the Stars - Dynamic Pricing in the Presence of Rating Systems
Author-Name: André Stenzel
Author-Email: andre.stenzel@uni-mannheim.de
Author-Name: Christoph Wolf
Author-Email: christoph.wolf@unibocconi.it
Author-Name: Peter Schmidt
Author-Email: peter.schmidt@quantco.com

Classification-JEL: D21, D82, L15
Keywords: Rating Systems, Dynamic Pricing, Asymmetric Information

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.

Note: 
Length: 33
Creation-Date: 2020-02
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp143
Handle: RePEc:bon:boncrc:CRCTR224_2020_143v2