2024/04/23 by José Correa, Correa, José, Mathieu Mari +3 · 1 citation
Business, Management and Accounting · Decision Sciences · #Auction Theory and Applications #Consumer Market Behavior and Pricing #Digital Platforms and Economics #FOS: Computer and information sciences #Machine Learning (cs.LG)
paper · pdf · doi:10.48550/arxiv.2404.14953
openalex publication_date 2024/04/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
When launching new products, firms face uncertainty about market reception. Online reviews provide valuable information not only to consumers but also to firms, allowing firms to adjust the product characteristics, including its selling price. In this paper, we consider a pricing model with online reviews in which the quality of the product is uncertain, and both the seller and the buyers Bayesianly update their beliefs to make purchasing & pricing decisions. We model the seller's pricing problem as a basic bandits' problem and show a close connection with the celebrated Catalan numbers, allowing us to efficiently compute the overall future discounted reward of the seller. With this tool, we analyze and compare the optimal static and dynamic pricing strategies in terms of the probability of effectively learning the quality of the product.