Building an Online Reputation with Free Content

Abstract

New sellers who enter online marketplaces have to build up an online reputation in order to be successful. I examine how sellers use "free'' (offering products at a zero price) as a dynamic pricing strategy to encourage consumers to experience their products, thereby increasing the number of online reviews and contributing towards building up an online reputation. Using data from an online self-publishing platform, I show that the same e-book is more likely to be offered as free content when it has gathered fewer previous reviews and receives more reviews when it is offered as free content. However, the same e-book receives worse reviews when it is offered for free. This negative impact of "free'' on an e-book's online reputation is driven by a selection effect, whereby more consumers with a lower preference for a particular e-book provide reviews when the e-book is offered as free content. These results imply that although "free'' can be effective to build up an online reputation more quickly, sellers face the trade-off that the earned reputation will be worse.

Keywords: Online Reputation, Ratings, Free Products

JEL Classification: L86, M31, D82