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Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Product Reviews

Date：2015-06-02 From：

TIME：Monday9:00am

June 8, 2015

PLACE：25A-Class B (3rd floor)

SPEAKER：Prof. Jianqing Chen (The University of Texas at Dallas)

Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme). Easy access to product reviews which facilitate consumers' purchase decisions is another distinctive and ubiquitous characteristic of online retailing. We show that retailers can use the upstream pricing scheme, wholesale or platform, as a strategic tool to benefit from reviews. The information provided by reviews on the quality dimension homogenizes consumers' perceived utility differences between the two products and increases the upstream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. The information provided by reviews on the fit dimension heterogenizes consumers' estimated fits to the products and softens the upstream competition, which hurts the retailer under the wholesale scheme and benefits the retailer under the platform scheme. Consequently, a retailer can benefit from reviews by switching to wholesale scheme when the quality dimension plays a dominant role, and to platform scheme when the fit dimension plays a dominant role. Together, we demonstrate that the quality information and fit information play very different roles in changing the upstream competition, and whether the retailer can benefit from the reviews critically depends on its pricing scheme choice.

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