Entries Tagged 'Working Papers' ↓

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.

Pavlou, Paul A., Huigang Liang, and Yajiong Xue, "Understanding and Mitigating Uncertainty in Online Exchange Relationships: A Principal-Agent Perspective," (January 2006).

Abstract.  Despite a decade since the inception of B2C e-commerce, the uncertainty of the online environment still makes many consumers reluctant to engage in online exchange relationships. Even if uncertainty has been widely touted as the primary barrier to online transactions, the literature has viewed uncertainty as a "background" mediator with insufficient conceptualization and measurement. To better understand the nature of uncertainty and mitigate its potentially harmful effects on B2C e-commerce adoption (especially for important purchases), this study draws upon and extends the principal-agent perspective to identify and propose a set of four antecedents of perceived uncertainty in online buyer-seller relationships – perceived information asymmetry, fears of seller opportunism, information privacy concerns, and information security concerns - which are drawn from the agency problems of adverse selection (hidden information) and moral hazard (hidden action).

To mitigate uncertainty in online exchange relationships, this study integrates the principal-agent perspective with information systems, marketing, and sociological theories to propose a set of four mitigating factors – trust, website informativeness, product diagnosticity, and social presence - that enable online transactions by overcoming the problems of hidden information and hidden action through the logic of signals and incentives.

The proposed structural model is empirically tested with longitudinal data from 521 consumers for two products (prescription drugs and books) that differ on their level of purchase importance. The results support our model, delineating the process by which buyers engage in online exchange relationships by mitigating uncertainty. Interestingly, the proposed model is validated for two distinct targets, a specific website and a class of websites.

Implications for understanding and facilitating online exchange relationships for different types of purchases, mitigating uncertainty perceptions, and extending the principal-agent perspective are discussed.  Download pdf.

Zettelmeyer, Florian, Fiona  Scott Morton, and Jorge Silva-Risso, "Cowboys or Cowards: Why are Internet Car Prices Lower?," (November 2005).

Abstract. This paper provides evidence that consumer use of Internet referral services lowers purchase prices in an important established offline industry, the retail auto industry. We analyze a large dataset of transaction prices for new automobiles and referral data from Autobytel.com. Using an instrumental variables approach to control for selection, we find that buying a car through Autobytel.com reduces the price a consumer pays by approximately 2.4%. This is in contrast to the on average 1% lower prices that online buyers pay compared to offline consumers, for the same car. This suggests that consumers who use an Internet referral service are not those who would have obtained a low price even in the absence of the Internet. Instead, our findings are consistent with consumers choosing to use Autobytel.com because they know that they would do poorly in the traditional channel, perhaps because they have a high personal cost to collecting information and bargaining. We estimate that savings to this initial group of early adopters who use Autobytel.com are at least $240 million per year. Since there are other referral and informational sites that may also help consumers bargain more effectively with dealers, we conclude that - at least at the time of our study - the Internet is facilitating a substantial redistribution of surplus in the retail auto industry.  Download pdf.

Rogers, Waymond and Solomon Negash, “The Effects of Web-Based Technologies on Knowledge Transfer,” (November 2005).

Abstract.  Web-based technologies are entering into our lives at a rapid pace as well as impacting our learning habits.  Due to the arrival of powerful information technologies, major challenges to organizations are viewed as the producing and processing of knowledge.  Internet portals represent an extension of knowledge transfer for users.  Suppose you are an individual interested in learning more about the products/services of a company.  Will the information, service, and perceptions of the quality of the company’s web-based services strongly influence your decision to retain a company’s products/services?  Download pdf.

This working paper has been revised.  Please see:

Novak, Thomas P. and Donna L. Hoffman, “The Fit of Thinking Style and Situation:  New Meassures of Situation-Specific Experiential and Rational Cognition” (August 27, 2007).

Hoffman, Donna L, "Can We Live Without the Internet? Toward a Model of Internet Indispensability," (April 2005).

Presentation given at the Colloquium on Information Society and Technology, Information Law Institute, Department of Culture and Communication, New York University, Friday, April 22, 2005. Download pdf of Powerpoint slides. 

Li, Shibo, and Patrali Chatterjee, "Shopping Cart Abandonment at Retail Websites – A Multi-Stage Model of Online Shopping Behavior," (February 2005).

We propose a four-stage model of online shopping process to study shopping cart abandonment.  Consumer heterogeneity is accounted within a hierarchical Bayesian framework. A hidden Markov switching process is used to capture unobserved user navigation orientation. Managerial implications for customized web pages to reduce the attrition at each stage are discussed.  Download pdf.

White, Tiffany, Donna L. Hoffman, and Thomas P. Novak, "Forgotten Favors: Biased Account Keeping in Information-Driven Consumer-Seller Relationships," (February 2005)

Download pdf.

Zettelmeyer, Florian, Fiona  Scott Morton, and Jorge Silva-Risso, "How the Internet Lowers Prices: Evidence from Matched Survey and Auto Transaction Data," (2005).

Abstract.  While research has shown that the Internet has lowered the prices in some established industries, we know little about how using the Internet lowers prices.  We answer this question for the auto retailing industry with matched survey and transaction data on 1,500 car purchases in California. We show that the Internet lowers prices for two distinct reasons. First, the Internet informs consumers about the invoice price of dealers. Second, the referral process of online buying services helps consumers obtain lower prices. The combined information and referral price effects are -1.5%, or 22% of dealers’ average gross vehicle profit. We also find that the benefits of gathering information differ by consumer type. Buyers who have a high disutility of bargaining but who have collected information on the specific car they eventually purchase pay 1.5% less than they otherwise would. In contrast, buyers who like the bargaining process do not benefit from such information.  Download pdf.

Hoffman, Donna L., Thomas P. Novak, and Alladi Venkataesh, "Has The Internet  Become Indispensable? Empirical Findings and Model Development," (April  2004).

Abstract.  We seem to be in the midst of an Internet revolution and entering the  age of digital connectivity. The pace of social change resulting from the diffusion  of this technology, both nationally and globally is, by many accounts, dramatic.  In less than ten years, the Internet has become indispensable to many people in  their daily lives. What are the consequences of this? In this paper, we introduce  the idea that the Internet is becoming increasingly essential to families and the  society at large, present some data to support our contentions and develop a  conceptual model that allows for the testing of key hypotheses related to Internet  indispensability as next steps.

In this paper we explore the idea that the Internet has become indispensable to people in their daily lives, and develop a conceptual model that allows us to address the research questions this idea raises. The idea is that the Internet has become so embedded into the daily fabric of people’s lives that they simply cannot live with out it. How is the Internet indispensable and in what ways? For  which groups of people is it indispensable, for what tasks, and how has this  changed their lives and our society as a whole?

We take on these questions as follows. First, we provide some data from two  national studies of American households that support our contention that the  Internet has become indispensable on several key dimensions. Next, we  summarize broader discussions of indispensability drawn from the literature.  Then, we present our conceptual model and suggest research directions for the  future. We conclude with several comments on the social and policy implications  that arise from the fact that increasing numbers of individuals would be unwilling  to give up their access to the Internet if asked, as they have come to consider it  indispensable.  Download pdf.