Self Selection and Information Role of Online Product Reviews
University of Connecticut - School of Business
Lorin M. Hitt
University of Pennsylvania - Operations & Information Management Department
September 1, 2007
Information Systems Research, Vol. 19, No. 4, pp. 456-474, 2008
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.
Number of Pages in PDF File: 38
Keywords: online product reviews, self selection, consumer heterogeneity, herding
JEL Classification: C23, C40, D60, D80, L10, L86, M31Accepted Paper Series
Date posted: October 23, 2007 ; Last revised: January 23, 2012
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