Abstract
This paper investigates the interaction between cheap-talk advertising and credible third-party product reviews to inform customers about product quality. We find that cheap-talk advertising can be informative when the firm’s private information helps predict a credible product review. A more informative credible product review has two effects on cheap-talk advertising. First, a credible product review plays a disciplinary role that enables the firm to provide informative advertising. Second, it reduces the incremental value of cheap-talk advertising. We find that, in equilibrium, whether or not the advertising is consistent with a credible product review is informative about product quality. The results also imply that an overly informative product review can reduce the total information available to customers by deterring the firm from providing informative advertising.
| Original language | English |
|---|---|
| Pages (from-to) | 262-278 |
| Number of pages | 17 |
| Journal | Production and Operations Management |
| Volume | 34 |
| Issue number | 2 |
| Early online date | 25 Aug 2024 |
| DOIs | |
| Publication status | Published - Feb 2025 |
Bibliographical note
Publisher Copyright: © The Author(s) 2024.UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 9 Industry, Innovation, and Infrastructure
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