Abstract:

Online consumer reviews in the online channel have an essential impact on consumers’ purchase decisions and have attracted the attention of manufacturers. The impact of the manufacturer’s online review strategy on each retailer’s pricing decisions and the manufacturer’s quality decision in the presence of horizontal competition between the online and offline retailers is analyzed. A multi-stage Stackelberg game is formulated in which the manufacturer acts as the leader and the retailers are the followers. Additionally， horizontal competition is measured as the price difference between the online and the offline retailers. The results show that the online review strategy will reduce （or increase） the retail price in the offline （or online） channel during the continuous sales phase， widening the gap between the retail prices in the online channel and the offline channel. Therefore， the intensity of horizontal competition decreases. Moreover， cost efficiency， the manufacturer’s bargaining power， and consumers’ perceived level of quality are the three influencing factors of the manufacturer’s optimal quality. Under the constraint of ensuring that the equilibrium result exists and is positive， the results of the numerical analysis suggest that the manufacturer’s decision of online review strategy depends on the direction and extent of inter-channel consumer shifts. A gap in the existing literature is filled by considering that the role of online consumer reviews differs between the online and the offline channels in a horizontal competitive environment.

Key words: online consumer reviews, pricing decision, product quality, game theory