Impact of online information on the pricing and profits of firms with different levels of brand reputation

A high brand reputation is usually associated with a brand premium and high profit. Does it still hold in the online market with rich information? How do the sales volume information and ratings information change the influence of the existing brand reputation? This study investigates a two-period pricing model of duopoly firms with different levels of brand reputation (high vs. low) in the presence of online information. We examine the impact of online information on firms’ optimal pricing and profits while considering the impact of brand reputation. Our analytical results find that in the presence of online information, the brand premium may be negative, and the firm with a lower brand reputation can earn higher profit under certain conditions. In addition, the profits of both firms may increase as the brand reputation gap increases, which implies a win-win situation in the brand competition. This study deepens our understanding of brand reputation in the context of online market, which is influenced by the herding effect and price effect of online information. The theoretical results provide guidelines for the design of online reputation systems, brand cooperation, and information disclosure.