Time: Apr.21(Thu.), 15:00 -16:30 (Beijing Time)

Title: Price Signaling and Reputation Building: Evidence from a Consulting Platform

On Zoom, scan the QR code for registration

About the speaker:

Yangguang (Sunny) Huang is an Assistant Professor of Economics at the Hong Kong University of Science and Technology. His research areas are Industrial Organization and Applied Microeconomics. His research projects tackle problems in auctions, procurement, corruption, financial development, digital economy, online markets, and innovation policy. He has published papers in Management Science, International Economic Review, Games and Economic Behavior, and European Economic Review.

Abstract:

Earning a good reputation is crucial for the survival of new firms on online retailing and service platforms. With a dynamic price signaling model, we show that a high-quality firm can signal its unobserved quality by setting a lower introductory price than its low-quality counterpart. After accumulating sufficient favorable reviews, the high-quality firm will raise its price and enjoy a quality premium. Using data from Zaihang, a consulting service platform, we find empirical evidence that experts with high unobserved ability indeed adopt low introductory prices and exhibit a rising price dynamics over time. We use the performance of the expert on another platform as the instrument for the expert’s ability on Zaihang to confirm that the relationship is causal. Our empirical findings reject alternative models in which firms do not know their own types, or consumers can observe firm types.