2. Management Responses to Feedback Systems. In an article in Marke...

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2. Management Responses to Feedback Systems. In an article in Marketing Science,[1] Davide Proserpio and Georgios Zervas analyze the effectiveness of management responses to feedback systems (i.e., to online reviews by customers)
- “In this climate, the practice of publicly responding to consumer reviews has emerged as an alternative reputation management strategy that is legal, endorsed by review platforms, and widely adopted by managers. A management response is an open-ended piece of text that is permanently displayed beneath the review it addresses. Unlike the review itself, the response does not carry a rating and it doesn’t affect the responding firm’s average rating. While review platforms ensure that responses meet basic standards (such as avoiding offensive language) they allow any firm to respond to any reviewer. Most major review platforms, including TripAdvisor and Yelp, allow firms to respond.
What would you consider to be the equilibrium effect of allowing management responses? - How would it affect the reviews by guests? What would be your estimate of equilibrium prices after allowing management to respond to reviews?
In the paper, the authors find that allowing management to respond increases the average rating by customers of those hotels. What would you expect the effect on prices be between hotels whose management respond to reviews versus hotels whose management publicly commit not to respond (or always respond with the same message)?
- How would the effect of allowing management responses change if managers committed to answering all reviews (not only the negative ones)?

3. Innovation and Market Structure. Until the 1980s, mass-production of insulin was based on extracting the hormone from the pancreases (insulin producing organs) of animals (like pigs and cows). These pancreases were a byproduct of the meat industry (so that insulin-producing factories were typically located close to meat districts). In the 1980s, 2 tons of pig parts were necessary to produce 8 ounces of purified insulin.
- Based on discoveries in 1978, starting in 1982 Eli Lilly and Co and Genentech formed a venture that started the production of "engineered" human insulin. This production was based on using recombinant DNA by having microorganisms produce insulin -the process involved inserting a human gene for insulin into the bacteria, who then would transform it into m-RNA and then produce the hormone in their ribosomes. This increased the yields of insulin production tremendously (i.e., it reduced the cost of producing insulin substantially).
- Suppose that Eli Lilly had exclusive rights to use the new “viral” technology (because of a patent) and consider the gain in profits as a result of this innovation. Are these gains larger if Eli Lilly was initially a monopolist of “animal” insulin or if Eli Lilly faced initially limited competition (say duopoly)? Would your answer depend on whether under duopoly Eli Lilly was competing in prices or in quantities?

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When the management responds to the reviews posted online it would be benefitting on their ratings and hence would increase their popularity and revenue. Here when management responds to the reviews, the customers (or the guests to these hotels) know the fact that the management takes time to read, acknowledge and respond to their reviews and hence this would strengthen their brand reputation and improve performance on social media and this would boost the demand for these hotels (services) and hence would increase the price and quantity demanded for these services. The negative reviews provided by customers might be resolved through management responses and would provide satisfaction to the customers if they are taken care of in the future services. When the management is allowed to respond to reviews, they would focus on responding to negative...

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