Source:
Information Systems Research, Volume 19, Issue 4, p.18 (2008)
Keywords:
online product reviews, self selection, consumer heterogeneity, herding
Abstract:
Online product reviews may be subject to self-selection biases that impact consumer purchase
behavior, online ratings' time series, and consumer surplus. This occurs if early buyers hold
different preferences than do later consumers regarding the quality of a given product. Readers of
early product reviews may not successfully correct for these preference differences when
interpreting ratings and making purchases. In this study, we develop a model that examines how
idiosyncratic preferences of early buyers can affect long-term consumer purchase behavior as
well as the social welfare created by review systems. Our model provides an explanation for the
structure of product ratings over time, which we empirically test using online book reviews
posted on Amazon.com. Our analysis suggests that firms could potentially benefit from altering
their marketing strategies, such as pricing, advertising, or product design, to encourage
consumers likely to yield positive reports to self-select into the market early and generate
positive word of mouth for new products. On the other hand, self-selection bias, if not corrected,
decreases consumer surplus.
Notes:
Version is pre-publication (prior to journal copy editing and typesetting). See journal for final version.