Motivated by the proliferation of user-generated product-review information and its widespread use, this note studies a market where consumers are heterogeneous in terms of their willingness to pay for a new product. Each consumer observes the binary reviews (like or dislike) of consumers who purchased the product in the past and uses Bayesian updating to infer the product quality. We show that the learning process is successful as long as the price is not prohibitive, and therefore at least some consumers, with sufficiently high idiosyncratic willingness to pay, will purchase the product irrespective of their posterior quality estimate. We examine some structural properties of the dynamics of the posterior beliefs. Finally, we study the seller’s pricing problem, and we show that, if the set of possible prices is finite, then a stationary optimal pricing policy exists. If it costs the seller a constant amount for each additional unit sold, then under the optimal policy learning fails with positive probability.

Bayesian Social Learning from Consumer Reviews / Ifrach, Bar; Maglaras, Costis; Scarsini, Marco; Zseleva, Anna. - In: OPERATIONS RESEARCH. - ISSN 0030-364X. - 67:5(2019), pp. 1209-1221. [10.1287/opre.2019.1861]

Bayesian Social Learning from Consumer Reviews

Scarsini, Marco;
2019

Abstract

Motivated by the proliferation of user-generated product-review information and its widespread use, this note studies a market where consumers are heterogeneous in terms of their willingness to pay for a new product. Each consumer observes the binary reviews (like or dislike) of consumers who purchased the product in the past and uses Bayesian updating to infer the product quality. We show that the learning process is successful as long as the price is not prohibitive, and therefore at least some consumers, with sufficiently high idiosyncratic willingness to pay, will purchase the product irrespective of their posterior quality estimate. We examine some structural properties of the dynamics of the posterior beliefs. Finally, we study the seller’s pricing problem, and we show that, if the set of possible prices is finite, then a stationary optimal pricing policy exists. If it costs the seller a constant amount for each additional unit sold, then under the optimal policy learning fails with positive probability.
Bayesian Social Learning from Consumer Reviews / Ifrach, Bar; Maglaras, Costis; Scarsini, Marco; Zseleva, Anna. - In: OPERATIONS RESEARCH. - ISSN 0030-364X. - 67:5(2019), pp. 1209-1221. [10.1287/opre.2019.1861]
File in questo prodotto:
File Dimensione Formato  
OR2019IMSZ.pdf

Solo gestori archivio

Tipologia: Versione dell'editore
Licenza: Tutti i diritti riservati
Dimensione 858.34 kB
Formato Adobe PDF
858.34 kB Adobe PDF   Visualizza/Apri
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/188762
Citazioni
  • Scopus 13
  • ???jsp.display-item.citation.isi??? 15
social impact