Understanding the Impact of Reviews on Consumer Product Choices under Negotiated Pricing

The objective of the paper is to understand the impact of reviews on product choices when consumers can negotiate a purchase price. Although prior studies have examined this impact in various contexts, none have considered a setting in which the purchase price is negotiated. Leveraging a unique data set of consumer reviews of new car purchases, this research shows a double-edged-sword effect. On the one hand, good reviews can increase choice probability by raising consumer baseline preferences; on the other hand, such reviews may increase the seller’s bargaining power, which may result in higher purchase prices and subsequent lower choice probability. We developed a structural model to reveal the multiple mechanisms in reviews that impact negotiated price and product choices. Ignoring the impact of reviews on the negotiated price leads to a biased estimation of the effectiveness of reviews. We quantified expected consumer savings from access to review features of historical price and discount frequency using counterfactual analyses and arrived at estimated values of $96.92 and $88.92, respectively. Online review platforms could potentially generate measurable economic benefits by monetizing price-related review content.