Leveraging Reviews: Learning to Price with Buyer and Seller Uncertainty

Abstract

In online marketplaces, customers have access to hundreds of reviews for a single product. Buyers often use reviews from other customers that share their type---such as height for clothing, skin type for skincare products, and location for outdoor furniture---to estimate their values, which they may not know a priori. Customers with few relevant reviews may hesitate to make a purchase except at a low price, so for the seller, there is a tension between setting high prices and ensuring that there are enough reviews so that buyers can confidently estimate their values. Simultaneously, sellers may use reviews to gauge the demand for items they wish to sell.