Online Reviews and Collaborative Service Provision: A Signal‐Jamming Model

Abstract

We study the provision of collaborative services under online reviews, where the service outcome depends on the effort of both the service provider and the client. The provider decides not only her own effort but also the client's, at least to some extent. The client gives the review based on his net utility upon service completion. We develop a signal‐jamming model in which the provider's inherent capability or type is unobservable, and the market infers the provider type through observable signals such as the service outcome, the client review, or both. We show that compared to the benchmark case when the service outcome is observed as a signal, the client review generally leads to less effort of both the provider and the client. The review hence tends to sacrifice the service effectiveness in favor of the efficiency of the client's effort input. Nevertheless, when clients incorporate private information about the provider type into their reviews, service providers are better motivated to devote effort. Interestingly, we find the provider's effort choices may be either strategic complements or substitutes. With a reasonable level of informativeness, online reviews could lead to favorable performance in service effectiveness, client effort efficiency, and provider type distinguishability. Surprisingly, we demonstrate that when both the review and the outcome are available, the provider may lack sufficient incentive to devote effort, resulting in inferior distinguishability of provider types. It thus illustrates that richer information may not necessarily generate favorable strategic outcomes.

Effects of online reviews and competition on quality and pricing strategies

“…Second, the product information disclosure from online reviews may induce a firm to improve or decrease its quality level, depending on the cost parameter as well as pricing policy. This finding contradicts with previous studies, which claim that online reviews can normally motivate firms to improve product quality (e.g., Jiang & Yang, 2019; Sun & Xu, 2018). Third, our results show that online reviews may enable the firms to mark up or mark down the selling price over time, depending on the combination of parameters.…”

Production of Online Word‐of‐Mouth: Peer Effects and the Moderation of User Characteristics

“…The management of online customer response is increasingly important for companies with the proliferation of Internet and related technologies Ye 2014, Sun andXu 2018). Online reviews are a major form of customer response, or word of mouth, and drawing attention from business offering tangible and intangible products (Abrahams et al 2015, Chen et al 2016.…”

The influence of online customer reviews on two-stage product strategy in a competitive market

“…More specifically, if online customer reviews can significantly increase customers' perceived utility relative to their private assessment of product quality from the product information disclosed by firms, firms will be incentivized to invest more in improving the quality level of products to raise the online customer reviews and stimulate more demand accordingly. This may explain why customers are more willing to shop on e-commerce platforms with online review functions, because customer reviews can motivate firms to provide high-quality products (Jiang & Yang, 2019;Sun & Xu, 2018). Although increased demand can benefit the firms, higher quality level will incur extra costs.…”