The authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state-dependent demand. Rather than assuming that firms are perfectly forward looking and therefore solving accordingly for dynamic equilibriums that would arise in the presence of state dependence, the authors systematically evaluate whether boundedly rational firms indeed look ahead when they set prices and, if so, to what extent. They illustrate the procedure using household-level scanner-panel data on breakfast cereals and replicate the substantive results using data on ketchup. The authors find that (1) omission of state dependence in demand biases inference of firm behavior (i.e., tacit collusion is erroneously inferred when firms are competitive); (2) observed retail prices are consistent with a pricing model in which both manufacturers and retailers are forward looking (i.e., they incorporate the effects of their current prices on their future profits), but firms have short time horizons when setting prices (i.e., they look ahead by only one period, suggesting that firms are boundedly rational in their dynamic pricing behavior); and (3) even a myopic pricing model of firms that accounts for state dependence in demand is a reasonable approximation of the observed prices in the market.

The authors study the role of reference price in a setting in which both the price and the quantity are set through personal interaction during the transaction process, such as in business-to-business markets. Most studies on reference price in the marketing research literature focus on consumer packaged goods, for which prices are typically fixed during the shopping trip and the transaction does not involve personal interaction with a salesperson. In this study, the authors study the effect of reference price on the quantity purchased and also on the pricing outcome of the transaction. They estimate a simultaneous equation system of both pricing and quantity purchased. The findings are as follows: (1) Reference price effects exist on quantity purchased and on the transaction pricing outcome in business-to-business market transactions, (2) business customers react asymmetrically to price increases and price decreases, and (3) salespeople have their own reference prices that affect the transaction price. The authors also find that customer experience with the salesperson might exacerbate the loss aversion effect. They conclude by discussing the underlying reasons behind these findings and their managerial implications.

T his paper investigates the economic value of online reviews for consumers and restaurants. We use a data set from Dianping.com, a leading Chinese website providing user-generated reviews, to study how consumers learn, from reading online reviews, the quality and cost of restaurant dining. We propose a learning model with three novel features: (1) different reviews offer different informational value to different types of consumers; (2) consumers learn their own preferences, and not the distribution of preferences among the entire population, for multiple product attributes; and (3) consumers update not only the expectation but also the variance of their preferences. Based on estimation results, we conduct a series of counterfactual experiments and find that the value from Dianping is about 7 CNY for each user, and about 8.6 CNY from each user for the reviewed restaurants in this study. The majority of the value comes from reviews on restaurant quality, and contextual comments are more valuable than numerical ratings in reviews.

W e investigate price competition between firms in markets characterized by consumer variety seeking.While previous research has addressed the effect of consumer inertia on prices, there exists no research on the effects of variety seeking on price competition. Our study fills this gap in the literature. Using a twoperiod duopoly framework as in Klemperer's analysis of inertial markets, we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking. Specifically, our variety-seeking model implies tacit collusion between firms in both periods, unlike the inertia model of Klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period. When consumers are assumed to have rational expectations about future prices, the implied first-period prices increase further, which is consistent with what Klemperer finds in an inertial market. To summarize, while our variety-seeking analyses support two key results (pertaining to second-period prices and rational expectations) previously derived for inertial markets by Klemperer, they depart from one key result (pertaining to first-period prices).

In online crowdfunding markets, backers face high uncertainty about the quality of a campaign. To mitigate such uncertainty, crowdfunding platforms often allow campaign creators to post communicative messages—that is, campaign updates and creator comments—to dynamically disclose further information about the campaigns. In addition, previous funding transactions of ongoing campaigns are made publicly available, giving rise to herding among backers. In this research, we aim to understand how communicative messages and herding interactively shape the behavior of backers contributing to crowdfunding campaigns. Our results show that the frequency of communicative messages has a positive effect on backer contributions; however, it attenuates successors' herding momentum toward predecessors, perhaps because the information disclosed in those messages lowers the informational value of previous funding transactions. To investigate the role of message contents, we extract topics addressed in update and comment messages using a Latent Dirichlet allocation model. The results reveal that distinct messages have different impacts on backers' contribution and herding behavior, and such discrepancies are found to be topic specific. This study not only contributes to operations management literature on crowdfunding but also offers implications for campaign creators and platform managers.