Online Product Reviews: Implications for Retailers and Competing Manufacturers
Authors: Kwark, Young; Chen, Jianqing; Raghunathan, Srinivasan
Journal: Information Systems Research (2014)
<jats:p> 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 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. Quality information homogenizes consumers' perceived utility differences between the two products and increases the upstream competition, which benefits the retailer but hurts the manufacturers. 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…