| Article ID: | iaor20127385 |
| Volume: | 54 |
| Issue: | 1 |
| Start Page Number: | 681 |
| End Page Number: | 690 |
| Publication Date: | Dec 2012 |
| Journal: | Decision Support Systems |
| Authors: | Wei Kwok Kee, Feng Juan, Liu Yuewen |
| Keywords: | marketing |
Motivated by the contradictory findings in literature regarding whether high‐reputation sellers enjoy a price premium over low‐reputation sellers, this paper examines the pricing strategies of sellers with different reputation levels. We find that a negative price premium effect (i.e., a high‐reputation seller charges a lower price than a low‐reputation seller) exists due to: (1) the presence of both informed and uninformed buyers, which makes sellers follow mixed pricing strategies. It is then possible for a high‐reputation seller setting a lower price than a low‐reputation seller. Moreover, when the proportion of informed buyers exceeds a certain threshold, the expected price of a high‐reputation seller is even lower than that of a low‐reputation seller; (2) the competition among the sellers, which reduces the high‐reputation sellers' prices but increases the low‐reputation sellers' prices. Consequently, a high‐reputation seller is more likely to charge a lower price than a low‐reputation seller when the competition intensifies. Our empirical findings also support our theoretical results on the negative price premium effect.