Institutional Feedback Technologies in Online Marketplaces: An Investigation of Feedback Text Comments, Trust, and Price Premiums

For online marketplaces to succeed and prevent a market of ‘lemons’, their feedback technologies must be able to differentiate among sellers and generate price premiums for trustworthy ones (as returns to their superior feedback). However, the literature has solely focused on positive and negative feedback ratings, alas ignoring the role of feedback text comments. These text comments are proposed to convey useful tacit knowledge about a seller’s prior transactions that cannot be described by simple positive and negative ratings. This study examines the ‘hidden’ content of feedback text comments and its role in building buyer’s trust in a seller’s benevolence and credibility. In turn, benevolence and credibility are proposed to influence the price premiums that a seller receives from buyers. This paper utilizes content analysis to analyze over 10,000 feedback text comments of 420 sellers in eBay’s online auction marketplace, and match them with survey responses from 420 buyers that recently purchased products from these sellers. These dyadic data show that feedback comments create price premiums for trustworthy sellers by influencing buyer trust beliefs in a seller’s benevolence and credibility (even after controlling for the impact of positive and negative ratings). The analysis of feedback comments does provide a superior explanatory power in benevolence and credibility. Interestingly, the addition of benevolence (which has been ignored in online auctions) provides an outstanding predictive power on price premiums (R2 = 50%) compared to prior studies (R2 = 20-30%). By uncovering the ‘hidden’ value of feedback text comments and the mediating role of benevolence, this study helps explain the existence and success of online marketplaces that rely on seller differentiation. The paper discusses the study’s theoretical and practical implications for better understanding the nature and role of institutional feedback technologies, benevolence, credibility, and price premiums in online marketplaces.