Direct and Indirect Benefits of Introducing Purchase Verification in E-commerce Platforms: Evidence from a Natural Experiment
48 Pages Posted: 11 Nov 2019
Date Written: October 30, 2019
Online e-commerce platforms struggle to create and maintain high quality reputation systems. One promising option is the "Verified Purchase'' (VP) badge, which confirms that the user reviewing a product actually purchased the product from the platform. Previous works comparing reputation platforms that require purchase verification with platforms that do not offer purchase verification found that review manipulation is easier in the latter. But what happens when purchase verification is optional (VP-optional)? Even further, how does introducing purchase verification alter review and reviewer characteristics?
To investigate these questions we leverage a natural experiment to analyze 336,043 book reviews from two platforms (Amazon U.S., and Amazon U.K.). We theorize and find empirical evidence that introducing purchase verification in a VP-optional market reduces fake reviews, the majority of which are positive. Directly, this reduction of fake reviews results in lower product ratings and longer reviews posted by more experienced reviewers. Indirectly, through increased attention, purchase verification increases the overall review helpfulness. These novel findings extend our understanding of how purchase verification can improve a platform's reputation system.
Keywords: Online reputation systems, Purchase verification, E-commerce, Natural experiment, Difference in Differences, Document Embedding, Fake reviews
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