Pricing Strategies in a Supply Chain with Multi-Manufacturer and a Common Retailer Under Online Reviews

Abstract

Online reviews play an important role in consumer purchasing behavior when shopping online, and in turn affect pricing strategies of sellers. We consider a supply chain consisting of three competitive manufacturers and an e-tailer, which sells multiple substitutable products procured from different manufacturers. Considering reviews in terms of quality information and fit information, we study the effect of online reviews on consumers’ purchasing decisions as well as pricing strategies of manufacturers and the e-retailer. Through modelling customer choice with online reviews based on neo-Hoteling model and solving Stackelberg game composed by manufacturers and e-tailer, we obtain the optimal equilibrium prices of manufacturers and the e-tailer. And we distinguish two kinds of effect from online reviews: effect of the opinion bias in product quality and effect of the match informativeness. Furthermore, compared to the case without online reviews, we find online reviews improve a manufacturer’s optimal wholesale price, profit as well as the retailer’s optimal retailing price, when the adjusted quality revealed by reviews is high; however, online reviews can improve the e-tailer’s optimal profit, only when the standard deviation of products’ quality revealed by reviews is large enough. Last, we get that the increase of competing manufacturers’ quantity would change the dominance between two kinds of effect from reviews on supply chain members.

Keywords

Online reviews / neo-Hoteling model / Stackelberg game / pricing strategy

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