Reputational Underpricing

Speaker: Stepan Aleksenko (Southern Methodist University)

This talk examines how consumer reviews - reflecting both product quality and price can influence a firm’s pricing strategy. The study explores whether firms may deliberately set prices below consumers’ willingness to pay in order to manage their reputation through more favorable value-based reviews.

Using a model with a privately informed firm selling repeatedly to rational consumers, the research identifies conditions under which such underpricing occurs. The findings highlight that reputation-driven underpricing depends on the balance between vertical and horizontal product differentiation and, when it occurs, ultimately benefits consumers.

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