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Online Product Reviews: Implications for Retailers and Competing Manufacturers

Author

Listed:
  • Young Kwark

    () (Warrington College of Business Administration, University of Florida, Gainesville, Florida 32611)

  • Jianqing Chen

    () (Jindal School of Management, The University of Texas at Dallas, Richardson, Texas 75080)

  • Srinivasan Raghunathan

    () (Jindal School of Management, The University of Texas at Dallas, Richardson, Texas 75080)

Abstract

This paper studies the effect of online product reviews on different players in a channel structure. We consider a retailer selling two substitutable products produced by different manufacturers, and the products differ in both their qualities and fits to consumers' needs. Online product reviews provide additional information for consumers to mitigate the uncertainty about the quality of a product and about its fit to consumers' needs. We show that the effect of reviews on the upstream competition between the manufacturers is critical in understanding which firms gain and which firms lose. The upstream competition is affected in fundamentally different ways by quality information and fit information, and each information type has different implications for the retailer and manufacturers. Quality information homogenizes consumers' perceived utility differences between the two products and increases the upstream competition, which benefits the retailer but hurts the manufacturers. Fit information heterogenizes consumers' estimated fits to the products and softens the upstream competition, which hurts the retailer but benefits the manufacturers. Furthermore, reviews may also alter the nature of upstream competition from one in which consumers' own assessment on the quality dimension plays a dominant role in consumers' comparative evaluation of products to one in which fit dimension plays a dominant role. If manufacturers do not respond strategically to reviews and keep the same wholesale prices regardless of reviews (i.e., the upstream competition is assumed to be unaffected by reviews), then, we show that reviews never hurt the retailer and the manufacturer with favorable reviews, and never benefit the manufacturer with unfavorable reviews, a finding that demonstrates why reviews' effect on upstream competition is critical for firms in online marketplaces.

Suggested Citation

  • Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2014. "Online Product Reviews: Implications for Retailers and Competing Manufacturers," Information Systems Research, INFORMS, vol. 25(1), pages 93-110, March.
  • Handle: RePEc:inm:orisre:v:25:y:2014:i:1:p:93-110
    DOI: 10.1287/isre.2013.0511
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    File URL: http://dx.doi.org/10.1287/isre.2013.0511
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Yabing Jiang & Hong Guo, 2015. "Design of Consumer Review Systems and Product Pricing," Information Systems Research, INFORMS, vol. 26(4), pages 714-730, December.
    2. Liangfei Qiu & Asoo Vakharia & Arunima Chhikara, 2019. "Multi-Dimensional Observational Learning in Social Networks: Theory and Experimental Evidence," Working Papers 19-01, NET Institute.
    3. Yili (Kevin) Hong & Paul A. Pavlou, 2014. "Product Fit Uncertainty in Online Markets: Nature, Effects, and Antecedents," Information Systems Research, INFORMS, vol. 25(2), pages 328-344, June.
    4. Dominik Gutt, 2018. "In the Eye of the Beholder? Empirically Decomposing Different Economic Implications of the Online Rating Variance," Working Papers Dissertations 40, Paderborn University, Faculty of Business Administration and Economics.
    5. Theodoros Lappas & Gaurav Sabnis & Georgios Valkanas, 2016. "The Impact of Fake Reviews on Online Visibility: A Vulnerability Assessment of the Hotel Industry," Information Systems Research, INFORMS, vol. 27(4), pages 940-961, December.
    6. repec:eee:ejores:v:277:y:2019:i:2:p:454-468 is not listed on IDEAS
    7. Christian Matt & Thomas Hess, 2016. "Product fit uncertainty and its effects on vendor choice: an experimental study," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(1), pages 83-93, February.
    8. repec:eee:proeco:v:204:y:2018:i:c:p:204-213 is not listed on IDEAS
    9. repec:spr:elcore:v:18:y:2018:i:3:d:10.1007_s10660-017-9266-7 is not listed on IDEAS
    10. Song, Luona & Qi, Jiayin & Lu, Tingjie & Zhang, Kai, 2019. "Research on the impact of the blockchain-authenticated information on consumers' perception towards traceable products: Evidence from JD," 30th European Regional ITS Conference, Helsinki 2019 205214, International Telecommunications Society (ITS).

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