In the online word-of-mouth literature, research has consistently shown that negative reviews have a greater impact on product sales than positive reviews. Although this negativity effect is well documented at the product level, there is less consensus on whether negative or positive reviews are perceived to be more helpful by consumers. A limited number of studies document a higher perceived helpfulness for negative reviews under certain conditions, but accumulating empirical evidence suggests the opposite. To reconcile these contradictory findings, we propose that consumers can form initial beliefs about a product on the basis of the product's summary rating statistics (such as the average and dispersion of the product's ratings) and that these initial beliefs play a vital role in their subsequent evaluation of individual reviews. Using a unique panel data set collected from Apple's App Store, we empirically demonstrate confirmation biasÑthat consumers have a tendency to perceive reviews that confirm (versus disconfirm) their initial beliefs as more helpful, and that this tendency is moderated by their confidence in their initial beliefs. Furthermore, we show that confirmation bias can lead to greater perceived helpfulness for positive reviews (positivity effect) when the average product rating is high, and for negative reviews (negativity effect) when the average product rating is low. Thus, the mixed findings in the literature can be a consequence of confirmation bias. This paper is among the first to incorporate the important role of consumers' initial beliefs and confidence in such beliefs (a fundamental dimension of metacognition) into their evaluation of online reviews, and our findings have significant implications for researchers, retailers, and review websites.
Electronic commerce has grown rapidly in recent years. However, surveys of online customers continue to indicate that many remain unsatisfied with their online purchase experiences. Clearly, more research is needed to better understand what affects customers' evaluations of their online experiences. Through a large dataset gathered from two online websites, this study investigates the importance of product uncertainty and retailer visibility in customers' online purchase decisions, as well as the mitigating effects of retailer characteristics. We find that high product uncertainty and low retailer visibility have a negative impact on customer satisfaction. However, a retailer's service quality, website design, and pricing play important roles in mitigating the negative impact of high product uncertainty and low retailer visibility. Specifically, service quality can mitigate the negative impacts of low retailer visibility and high product uncertainty in online markets. Website design, on the other hand, helps to reduce the impact of product uncertainty when experience goods are involved.
The capabilities of network technologies have facilitated the growth of electronic commerce. Major issues--notably, security and product quality uncertainty--still pose serious challenges to the further adoption of electronic commerce. Traditional market transactions have a long history and well-understood protections for buyers and sellers. In the electronic markets, formal and informal mechanisms such as trusted third parties (TTP) have emerged trying to ensure safe transactions . In this paper, we investigate under what conditions people will stick to the traditional market and face-to-face transactions, and under what conditions electronic transactions will be the convention of the future. Of particular interest is the role of TTPs in facilitating online transactions. Using evolutionary game theory, we present an analytical model of buyer and seller choices and examine which patterns of transactions can be sustained. We further study how the traders' adaptive behavior may influence the outcome of the market evolution. Through this analysis, we demonstrate that the market will show divergence: for commodity products, electronic transactions through TTPs will get established as the convention for market transactions when traders use historical information about other traders' past strategies. For "look and feel" products, the market evolution depends on the initial distribution of the transaction strategies in the population.
Internet fraud has been on the rise in online consumer-to-consumer (C2C) auction markets, posing serious challenges to people's trust in electronic markets. Among various remedies to promote trust and reduce trader's risk, online escrow service has been proposed as a trusted third party to protect online transactions from Internet fraud. However, whether an escrow service constitutes a viable business model for a trusted third party to effectively block Internet fraud remains an open question. This research proposes a dynamic game model for online traders and a profit maximization model for the escrow service provider. Through the investigation of the optimal strategies of online traders, we explore the relationships among traders' decision making, escrow service fee rates, and adoption rates. We reveal the demand for escrow services and establish the optimal pricing rule for the escrow service provider. A numerical study based on the theoretical analysis is conducted to provide detailed guidelines of the model application for an escrow service provider and to explore if the escrow service is a viable business model in C2C auction markets.
Creating electronic communities is a critical venture in the digital economy. However, fraud and misrepresentation have led to widespread skepticism and distrust of electronic communities. We develop an evolutionary model to explore the issue of trust within an electronic community from a dynamic process perspective. This model emphasizes large populations, continuous change in community memberships, and imperfect information and memory. As the term trust is often used in the context of individual interaction, at a group level we propose using the term health to measure the sustained competitive advantages of honest members over cheaters throughout the evolution of a community. We find conditions under which an electronic community is healthy and attracts outside population. We find that many factors, such as information dissemination speed, honest players' payoffs and possible losses, new community members' initial trust status, and the replacement rate of community members, all affect the health of an electronic community, and that some of them also affect a community's size. We then discuss the implications of our research for e-community practices.