What Happens to Ratings When Both Sides Multihome? The Impact of Vertical Spillover Effect on Platform Competition and Ratings Inflation

Posted: 18 Feb 2021 Last revised: 5 Jun 2023

See all articles by Yulia Vorotyntseva

Yulia Vorotyntseva

Saint Louis University - Richard A. Chaifetz School of Business

Aleksi Aaltonen

Temple University - Department of Management Information Systems

Subodha Kumar

Temple University - Fox School of Business

Paul A. Pavlou

University of Houston - C.T. Bauer College of Business

Date Written: December 17, 2020

Abstract

The standard 5-star rating system is a key source of information for consumers trying to decide where to eat, what products to buy, or which doctor to visit. While it is not surprising that vendors try to inflate their average ratings to boost sales, it is less obvious why some retail platforms tolerate or may even subtly encourage such behavior. Biased ratings diminish the capacity of the platform to match supply and demand and, hence, platform owners should strive to combat ratings inflation. We study this dilemma in a setting in which vendors multihome on competing platforms, and consumers can easily switch among platforms. Consumers may thus learn about the same vendor across several platforms that may have different average ratings for it. If different average ratings across platforms could affect the choice of the platform, then the platform owner has the incentive to let the ratings become inflated. Using incentive-aligned experiments and experiments based on stated preferences in an online food ordering context, we show that consumers are more likely to purchase from a platform that shows a higher average rating. We explain this by a vertical spillover effect from average vendor ratings to platform choice. Our results suggest that platform owners must be careful to avoid showing lower average ratings and monitor how competitors govern ratings on their platforms–a platform that naively invests in countering ratings manipulation risks hurting itself if competitors turn a blind eye to inflated ratings. The results have implications for combating ratings inflation.

Keywords: online consumer reviews, online review platforms, platform competition, consumer choice

Suggested Citation

Vorotyntseva, Yulia and Aaltonen, Aleksi and Kumar, Subodha and Pavlou, Paul A., What Happens to Ratings When Both Sides Multihome? The Impact of Vertical Spillover Effect on Platform Competition and Ratings Inflation (December 17, 2020). Available at SSRN: https://ssrn.com/abstract=3751739 or http://dx.doi.org/10.2139/ssrn.3751739

Yulia Vorotyntseva (Contact Author)

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Aleksi Aaltonen

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Subodha Kumar

Temple University - Fox School of Business ( email )

Philadelphia, PA 19122-____
United States

HOME PAGE: http://sites.temple.edu/subodha/

Paul A. Pavlou

University of Houston - C.T. Bauer College of Business

Houston, TX 77204-6021
United States

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