Pavlou, Paul A. and Angelika Dimoka, "The Nature and Role of Feedback Text Comments in Online Marketplaces: Implications for Trust Building and Price Premiums," (March 2006).
Abstract. For online marketplaces to succeed and prevent a market of ‘lemons’, their feedback mechanisms (reputation systems) must be able to differentiate among sellers and create price premiums for trustworthy ones (as returns to their superior reputation). However, the literature has solely focused on numerical (positive and negative) feedback ratings, alas ignoring the role of feedback text comments. These text comments are proposed to convey useful reputation information about a seller’s prior transactions that cannot be adequately captured with simple numerical ratings. Specifically, this study examines the content of feedback text comments and their role in engendering buyer’s trust in a seller’s benevolence and credibility. In turn, benevolence and credibility are proposed to influence the price premiums that a reputable seller receives from buyers.
This paper utilizes content analysis to quantify over 10,000 publicly-available feedback text comments of 420 sellers in eBay’s online auction marketplace, and match them with primary data from 420 buyers that recently transacted with these 420 sellers. These dyadic data show that evidence of extraordinary past seller behavior contained in the sellers’ feedback text comments creates price premiums for reputable sellers by engendering buyer’s trust in the sellers’ benevolence and credibility (controlling for the impact of numerical ratings). Interestingly, the addition of benevolence helps explain a higher variance in price premiums (R2=50%) compared to the literature (R2=20-30%). By showing the economic value of feedback text comments through trust in a seller’s benevolence and credibility, this study helps explain the apparent success of online marketplaces that rely on seller differentiation to prevent a market of ‘lemon’ sellers.
The paper discusses the study’s theoretical and practical implications for better understanding the nature and role of feedback text comments, benevolence and credibility, and price premiums in online marketplaces. Download pdf.
