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Welfare economics of review information: Implications for the online selling platform owner

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  • Zhang, Tao
  • Li, Gang
  • Cheng, T.C.E.
  • Lai, Kin Keung

Abstract

The review system is a core component of the online market as it provides user-generated content to support consumer purchase decisions. We investigate the welfare-based effects of review information features, i.e., the amounts of quality information and match information, and the accuracy of quality information, on the sellers and consumers, and discuss their implications for the online selling platform owner. We find that the amount of review information positively influences social welfare, but quality information and match information play different roles in the process of welfare enhancement. Quality information reduces the sellers’ profits but significantly increases consumer welfare, while match information benefits the sellers more than it hurts the consumers. The inaccuracy of quality information negatively affects the welfare enhancement function of review information. Considering the sellers’ quality information manipulation, we derive the conditions of inaccuracy information controlling and find that a higher manipulation cost coefficient eases the prisoner's dilemma for the sellers and increases consumer welfare. We discuss the implications and also note some counterintuitive insights for review system management.

Suggested Citation

  • Zhang, Tao & Li, Gang & Cheng, T.C.E. & Lai, Kin Keung, 2017. "Welfare economics of review information: Implications for the online selling platform owner," International Journal of Production Economics, Elsevier, vol. 184(C), pages 69-79.
    • Handle: RePEc:eee:proeco:v:184:y:2017:i:c:p:69-79
    DOI: 10.1016/j.ijpe.2016.10.017
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    6. Shao, Xiao-Feng, 2017. "Free or calculated shipping: Impact of delivery cost on supply chains moving to online retailing," International Journal of Production Economics, Elsevier, vol. 191(C), pages 267-277.
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    15. Zhang, Tao & Li, Gang & Lai, Kin Keung & Leung, John W.K., 2018. "Information disclosure strategies for the intermediary and competitive sellers," European Journal of Operational Research, Elsevier, vol. 271(3), pages 1156-1173.
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