Dynamic Pricing of New Experience Products in the Presence of Online Reviews

In this paper, we assume that monopolistic online retailer releases new experience products and obtains the signal of test marketing sales before the sales period. Based on this situation, we established a two-period dynamic pricing model. We studied the impact of online reviews on the dynamic pricing strategies of firms, and analyzed the equilibrium prices, demand, and profits. Research shows that for most firms with high-quality products, they prefer vague, low-information reviews, while for most firms with low-quality products, they prefer accurate, highly-informed reviews. When firms observe different test sales signals, the level of informativeness will affect the transfer of demand in the sales cycle. Finally, we also find that low-cost firms should adopt a skimming pricing strategy, while high-cost companies should adopt a penetration pricing strategy.