Abstract
A number of empirical studies investigate the of ratings on sellers' pricing and performance on digital platforms and e-commerce. By contrast, the impact of prices on ratings remains largely unexplored. To the extent that buyers internalize prices when rating a specific good or service, sellers can strategically set prices to influence ratings, which, in turn, might benefit their profits in the long-run. Using transaction and rating data from Airbnb from 2017, we first use a regression discontinuity design to provide empirical evidence that better ratings positively impact performance. Subsequently, we document a robust negative correlation between prices and ratings. Consistent with this finding, we provide additional evidence suggesting that hosts charging low prices when entering the market can generate above-average initial ratings. Interestingly, these hosts, after charging low-entry prices, are subsequently able to increase prices without suffering a comparable rating depreciation as do hosts who charge higher prices from the beginning.
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