Affiliation:
1. Darla Moore School of Business, University of South Carolina, Columbia, South Carolina 29201;
2. Warrington College of Business, University of Florida, Gainesville, Florida 32611
Abstract
The well-documented rating inflation of incentivized reviews (IRs) can mislead consumers into choosing a product that they would otherwise not buy. To protect consumers from this undesirable influence, the U.S. Federal Trade Commission recommends that reviewers conspicuously disclose any material connection they may have with sellers. In theory, such disclosures safeguard consumers by motivating reviewers to be truthful and inducing consumers to discount inflated IR ratings. Our research finds, however, that IR disclosure accomplishes neither. Specifically, our empirical analysis of consumer reviews on Amazon reveals that, even with disclosure, (1) rating inflation of IRs remains, and (2) this inflation boosts sales at consumers’ expense. Finally, we propose an alternative approach to eliminate rating inflation of IRs and empirically demonstrate its effectiveness. These findings have important implications for consumers, firms, and ongoing policy discussions around IRs. This paper was accepted by Duncan Simester, marketing. Funding: S. Park gratefully acknowledges financial support from the Darla Moore School of Business Research Grant Program at the University of South Carolina. W. Shin gratefully acknowledges financial support from the Brian R. Gamache Endowed Professorship at the University of Florida. J. Xie gratefully acknowledges financial support from the JCPenney Endowed Professorship at the University of Florida. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.00930 .
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Strategy and Management