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Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms

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  • Chrysanthos Dellarocas

    ()
    (R. H. Smith School of Business, University of Maryland, 4341 Van Munching Hall, College Park, Maryland 20742)

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    Abstract

    There is growing evidence that consumers are influenced by Internet-based opinion forums before making a variety of purchase decisions. Firms whose products are being discussed in such forums are therefore tempted to manipulate consumer perceptions by posting costly anonymous messages that praise their products. This paper offers a theoretical analysis of the impact of such behavior on firm profits and consumer surplus. There are three main results. First, if every firm's manipulation strategy is a monotonically increasing (decreasing) function of that firm's true quality, strategic manipulation of online forums increases (decreases) the information value of a forum to consumers. This result implies the existence of settings where online forum manipulation benefits consumers. Second, equilibria where strategies are monotonically increasing (decreasing) functions of a firm's true quality exist in settings where the firm's net payoff function, inclusive of the cost of manipulation, is supermodular (submodular) in the firm's quality and manipulation action. Third, in a broad class of settings, if the precision of honest consumer opinions that firms manipulate is sufficiently high, firms of all types, as well as society, would be strictly better off if manipulation of online forums was not possible. Nonetheless, firms are locked into a "rat race" and forced to spend resources on such profit-reducing activities; if they don't, consumer perceptions will be biased against them. The social cost of online manipulation can be reduced by developing "filtering" technologies that make it costlier for firms to manipulate. Interestingly, as the amount of user-contributed online content increases, it is firms, and not consumers, that have most to gain from the development of such technologies.

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    File URL: http://dx.doi.org/10.1287/mnsc.1060.0567
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 52 (2006)
    Issue (Month): 10 (October)
    Pages: 1577-1593

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    Handle: RePEc:inm:ormnsc:v:52:y:2006:i:10:p:1577-1593

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    Related research

    Keywords: online product reviews; electronic commerce; manipulation; word of mouth;

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    Cited by:
    1. Roman Inderst & Marco Ottaviani, 2013. "Sales Talk, Cancellation Terms and the Role of Consumer Protection," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1002-1026.
    2. Heyes, Anthony & Kapur, Sandeep, 2012. "Angry customers, e-word-of-mouth and incentives for quality provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 813-828.
    3. Michael Luca & Georgios Zervas, 2013. "Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud," Harvard Business School Working Papers 14-006, Harvard Business School.
    4. Benjamin Van Roy & Xiang Yan, 2009. "Manipulation Robustness of Collaborative Filtering Systems," Working Papers 09-21, NET Institute, revised Sep 2009.
    5. Weijia Dai & Ginger Z. Jin & Jungmin Lee & Michael Luca, 2012. "Optimal Aggregation of Consumer Ratings: An Application to Yelp.com," NBER Working Papers 18567, National Bureau of Economic Research, Inc.
    6. Andres Hervas-Drane, 2007. "Word of Mouth and Taste Matching: A Theory of the Long Tail," Working Papers 07-41, NET Institute, revised Jan 2009.
    7. Yabing Jiang & Hong Guo, 2012. "Design of Consumer Review Systems and Product Pricing," Working Papers 12-10, NET Institute.
    8. Christian Fieseler & Matthes Fleck & Miriam Meckel, 2010. "Corporate Social Responsibility in the Blogosphere," Journal of Business Ethics, Springer, vol. 91(4), pages 599-614, February.
    9. Coker, Brent L.S., 2012. "Seeking the opinions of others online: Evidence of evaluation overshoot," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1033-1042.
    10. Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2013. "Platform or Wholesale? Different Implications for Retailers of Online Product," Working Papers 13-14, NET Institute.
    11. Liang, Pinghan, 2013. "Exit and voice: a game-theoretic analysis of customer complaint management," MPRA Paper 45268, University Library of Munich, Germany.
    12. Kaplan, Andreas M. & Haenlein, Michael, 2011. "Two hearts in three-quarter time: How to waltz the social media/viral marketing dance," Business Horizons, Elsevier, vol. 54(3), pages 253-263, May.

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