Online Product Reviews: Is a Finer-Grained Rating Scheme Superior to a Coarser One?

Forthcoming, MIS Quarterly

46 Pages Posted: 8 Nov 2017 Last revised: 3 Dec 2019

See all articles by Murat M Tunc

Murat M Tunc

University of Texas at Dallas - Naveen Jindal School of Management

Huseyin Cavusoglu

University of Texas at Dallas

Srinivasan Raghunathan

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: September 23, 2019

Abstract

Product review platforms in online marketplaces differ with respect to the granularity of product quality information they provide. While some platforms provide a coarse single overall rating for product quality (also referred to as single-dimensional rating scheme), others provide a more granular rating - a separate rating for each individual quality attribute (also referred to as multi-dimensional rating scheme). A multi-dimensional rating scheme is superior to a single-dimensional rating scheme, ceteris paribus, in reducing consumers' uncertainty about product quality and value. However, we show that, when sellers respond to product ratings by adjusting their prices, compared to the single-dimensional rating scheme, the multi-dimensional rating scheme does not always benefit consumers, nor does it necessarily benefit the sellers or the society. The uncertainty associated with quality attribute rating and the extent of differentiation between competing products determine whether a fine-grained multi-dimensional rating scheme is superior to the coarse-grained single-dimensional rating scheme from the consumers', sellers' or a social planner's perspective. The main driver of the results is that the more (less) granular and less (more) uncertain information exposes (hides) underlying differentiation, or lack of it, between competing products, which, in turn, alters the upstream price competition in the presence of heterogeneous consumer preferences. The results demonstrate that focusing on the information transfer aspect of rating schemes provides only a partial understanding of the true impact of rating schemes.

Keywords: online product reviews, competition, retail platforms, analytical modeling, economics of IS

JEL Classification: L11, L15, D83

Suggested Citation

Tunc, Murat M and Cavusoglu, Huseyin and Raghunathan, Srinivasan, Online Product Reviews: Is a Finer-Grained Rating Scheme Superior to a Coarser One? (September 23, 2019). Forthcoming, MIS Quarterly, Available at SSRN: https://ssrn.com/abstract=3066085 or http://dx.doi.org/10.2139/ssrn.3066085

Murat M Tunc (Contact Author)

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

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

Huseyin Cavusoglu

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
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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