Welfare economics of review information: Implications for the online selling platform owner

Tao Zhang, Gang Li, Edwin Tai Chiu Cheng, Kin Keung Lai

Research output: Journal article publicationJournal articleAcademic researchpeer-review

16 Citations (Scopus)

Abstract

The review system is a core component of the online market as it provides user-generated content to support consumer purchase decisions. We investigate the welfare-based effects of review information features, i.e., the amounts of quality information and match information, and the accuracy of quality information, on the sellers and consumers, and discuss their implications for the online selling platform owner. We find that the amount of review information positively influences social welfare, but quality information and match information play different roles in the process of welfare enhancement. Quality information reduces the sellers’ profits but significantly increases consumer welfare, while match information benefits the sellers more than it hurts the consumers. The inaccuracy of quality information negatively affects the welfare enhancement function of review information. Considering the sellers’ quality information manipulation, we derive the conditions of inaccuracy information controlling and find that a higher manipulation cost coefficient eases the prisoner's dilemma for the sellers and increases consumer welfare. We discuss the implications and also note some counterintuitive insights for review system management.
Original languageEnglish
Pages (from-to)69-79
Number of pages11
JournalInternational Journal of Production Economics
Volume184
DOIs
Publication statusPublished - 1 Feb 2017

Keywords

  • Analytical modeling
  • Information economics
  • Online product reviews
  • Review manipulation
  • Social welfare

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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