User reviews and uncertainty assessment: A two stage model of consumers' willingness-to-pay in online markets

a r t i c l e i n f o Keywords: Electronic commerce Online user reviews Risk attitude Willingness-to-pay We develop a two-stage conceptual consumer decision model from the risk perspective to understand the role of online user reviews in consumers' Willingness-To-Pay (WTP). In stage one, consumers assess product uncertainty with product reviews. In stage two, they assess seller uncertainty with seller reviews, conditional on their assessment of product uncertainty in stage one. We further develop an operationalization of our conceptual model using the expected utility theory and derive hypotheses on the effects of online user reviews on consumers' WTP. We test our hypotheses using data from an experimental study and an empirical study. Online user reviews play an important role in e-commerce industry. Sellers pay close attention to how consumers talk about the products they purchase and the journey they experience presumably because consumers' post purchase opinions ultimately determine consumers' satisfaction and loyalty. According to Business Week (October 2009), some 70% of Americans say they consult product reviews or consumer ratings before making a purchase. Social commerce firm Bazzarvoice (bazzarvoice.com) also observed that 60% of retailers use customer reviews in choosing their product assortments. It estimates that as much as 70% of the products with product review ratings lower than and equal to 2 stars (in a 5 star system) have been pulled from some sites, compared to an average of 47%. These products are also pulled 24 days faster than the site average. It has been well documented in the literature that third-party online user reviews play an essential role in consumers' uncertainty assessment and purchase decisions such as whether to buy or how much to pay (WTP) [12,35]. Broadly speaking, there are two main sources of uncertainty for consumers in online shopping: product uncertainty and seller uncertainty. Most of the studies focus on understanding the role of online use reviews in mitigating purchase uncertainty associated with either products [13,14,32] or sellers [3,36], but not both until recently. In recent studies [12,16], the integrated effects of both product uncertainty and seller uncertainty are investigated for online used product markets where third-party product reviews are either non-existent or purged into seller reviews and an adverse selection problem often happens in understanding the impacts of user reviews. However, in majority of online markets (e.g., new goods market), independent third-party product reviews widely exist (e.g., Amazon.com) and significantly affect consumers' …