Dynamic Pricing with Consumer-Generated Information

We study a firm's pricing strategy in response to consumer-generated information (online word-of-mouth).The firm sells durable goods to consumers over two periods.After the first period sales, an aggregated signal about the second period demand is generated.The precision of consumer-generated information depends on the size of the user base in the first period.We show that, although a firm has no control over the content of information, it always cuts the firstperiod price to induce information (comparing to the case where there is no consumer-generated information).The consumer-generated information increases the firm's profitability.