Publication Type

Journal Article

Version

acceptedVersion

Publication Date

9-2008

Abstract

Online product reviews provided by consumers who previously purchased products have become a major information source for consumers and marketers regarding product quality. This study extends previous research by conducting a more compelling test of the effect of online reviews on sales. In particular, we consider both quantitative and qualitative aspects of online reviews, such as reviewer quality, reviewer exposure, product coverage, and temporal effects. Using transaction cost economics and uncertainty reduction theories, this study adopts a portfolio approach to assess the effectiveness of the online review market. We show that consumers understand the value difference between favorable news and unfavorable news and respond accordingly. Furthermore, when consumers read online reviews, they pay attention not only to review scores but to other contextual information such as a reviewer’s reputation and reviewer exposure. The market responds more favorably to reviews written by reviewers with better reputation and higher exposure. Finally, we demonstrate that the impact of online reviews on sales diminishes over time. This suggests that firms need not provide incentives for customers to write reviews beyond a certain time period after products have been released.

Keywords

Word-of-mouth, Online product reviews, Transaction cost economics, Uncertainty reduction, Efficient market, Portfolio analysis

Discipline

Computer Sciences | E-Commerce | Social Media

Research Areas

Information Systems and Management

Publication

Information Technology and Management

Volume

9

Issue

3

First Page

201

Last Page

214

ISSN

1385-951X

Identifier

10.1007/s10799-008-0041-2

Publisher

Springer

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1007/s10799-008-0041-2

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