Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

12-2008

Publication Source

Information Systems Research

Volume

19

Issue

4

Start Page

456

Last Page

474

DOI

10.1287/isre.1070.0154

Abstract

Online product reviews may be subject to self-selection biases that impact consumer purchase behavior, online ratings’ time series, and consumer surplus. This occurs if early buyers hold different preferences than do later consumers about the quality of a given product. Readers of early product reviews may not successfully correct for these preference differences when interpreting ratings and making purchases. In this study, we develop a model that examines how idiosyncratic preferences of early buyers can affect long-term consumer purchase behavior as well as the social welfare created by review systems. Our model provides an explanation for the structure of product ratings over time, which we empirically test using online book reviews posted on Amazon.com. Our analysis suggests that firms could benefit from altering their marketing strategies such as pricing, advertising, or product design to encourage consumers likely to yield positive reports to self-select into the market early and generate positive word-of-mouth for new products. On the other hand, self-selection bias, if not corrected, decreases consumer surplus.

Keywords

online product reviews, self-selection, consumer heterogeneity, herding

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Date Posted: 27 November 2017

This document has been peer reviewed.