Impacts of uncertain online reviews on pricing and profits of competitive retailers

Purpose This paper aims to investigate the impacts of uncertain online reviews on product prices and profits of two competitive retailers. Design/methodology/approach First, the authors develop a game-theoretical model to determine the optimal product prices and profits considering uncertain online reviews. Afterwards, to examine the effects of the uncertain online reviews, they compare the equilibrium solutions with those of the game-theoretical models of deterministic online reviews and no online reviews, respectively. Findings Uncertain online reviews play a significant role in product price optimization and profit maximization. In the quality-dominates-fit case, both retailers will lower their product prices in response to the uncertain online reviews. And the uncertain online reviews would hurt the two retailers. Conversely, in the fit-dominates-quality case, the presence of uncertain online reviews will encourage both retailers to raise their product prices. And the two retailers can still benefit from the online reviews. With the increase in consumer uncertainty about online reviews, both retailers might raise their product prices, thus generating higher profits. Practical implications Managerially, the results indicate that in the quality-dominates-fit case, when consumers are uncertain about online reviews, it might be better for retailers to abandon the online review system; however, in the fit-dominates-quality case, both retailers could still benefit from the uncertain online reviews through product price optimization. Therefore, the presence of an online review system could be beneficial. Originality/value This paper develops a game-theoretical model to help competitive retailers optimize their price strategies and achieve profit maximization considering uncertain online reviews.