Title: Social Learning and Strategic Pricing on Online Platforms
Abstract: The paper studies how review systems on an online platform affect social learning regarding quality of a product. We consider a model in which two types of buyers, one valuing quality while the other only caring about the price, come sequentially to buy a product, and the seller determines the price dynamically to attract different types of buyers and induce good ratings. We show that two phases, no-sale phase and sale phase, arise in a pure strategy Markov perfect equilibrium. Our results explain how different frequencies of sales (different efficiency of learning processes) can arise in different settings and shed light on how platforms can design their review systems to improve social learning.