The impact of word of mouth precision and consumer sophistication on firm pricing and profit
通过分析模型，研究了口碑信息的精度和消费者识别精度的能力如何影响企业的定价和利润，发现高精度口碑下企业可能通过定价传递质量信号，而消费者成熟度并不总是有利于高质量企业。
Consumers often use third-party information such as word of mouth (WOM), testimonials, and social media to learn about product quality. The precision of this information varies across information sources and consumers often cannot distinguish between high and low precision WOM. We investigate how the precision of WOM and consumers’ ability (or sophistication) to recognize precision affect the pricing and profit of firms. Using an analytical model, we show that when the firm is better informed about product quality than consumers (an adverse selection context), price acts as a signal of quality if and only if the average precision of WOM is high and the quality difference between high and low quality products is in an intermediate range. In other words, the firm often lets the ”market speak” about quality and does not influence consumer beliefs through pricing. When the average precision of WOM is low, both high and low quality firms lose profit as the average WOM precision improves. Contrary to conventional wisdom, we also find that high levels of consumer sophistication do not always help a high quality firm. When the average precision of WOM is high, a high quality firm may be able to charge a higher price and earn more by selling to consumers who cannot (versus who can) distinguish between high and low precision WOM. Our model provides insight about how firms should choose between consumer segments when introducing an experience good and how firm incentives to impact WOM precision vary in different phases of the product life cycle (introductory versus mature) and across (naive versus sophisticated) markets.