Online Product Reviews: Implications for Retailers and Competing Manufacturers

Information Systems Research, 25(1), 93-110, 2014.

49 Pages Posted: 23 Apr 2013 Last revised: 31 Mar 2017

See all articles by Young Kwark

Young Kwark

Warrington College of Business, University of Florida

Jianqing Chen

The University of Texas at Dallas, Jindal School of Management

Srinivasan Raghunathan

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: January 18, 2012

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 the 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. The quality information homogenizes consumers' perceived utility differences between the two products and increases the upstream competition, which benefits the retailer but hurts the manufacturers. The 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 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

Kwark, Young and Chen, Jianqing and Raghunathan, Srinivasan, Online Product Reviews: Implications for Retailers and Competing Manufacturers (January 18, 2012). Information Systems Research, 25(1), 93-110, 2014.. Available at SSRN: https://ssrn.com/abstract=2255097 or http://dx.doi.org/10.2139/ssrn.2255097

Young Kwark

Warrington College of Business, University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Jianqing Chen (Contact Author)

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

800 West Campbell Road
Richardson, TX 75080
United States

Srinivasan Raghunathan

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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