Impacts of online consumer reviews on a dual-channel supply chain

Abstract

This paper investigates the effects of online consumer reviews (OCRs) in a dual channel where the manufacturer distributes a product through a retail channel and an Internet channel. We develop game-theoretic models to capture both players’ pricing decisions and profits with OCRs, under two different channel structures. In specific, under the centralized channel, OCRs may increase or decrease the direct price but always lower the retail price. Under the decentralized channel, we show that the manufacturer has a higher probability to charge a higher direct price than under the centralized channel, and the retailer also has the chance to improve the retail price. Further, under the two channel settings, it is not necessarily wise for the manufacturer to provide OCRs in the Internet channel unless the information revealed by OCRs is sufficiently favorable.