The Nature and Role of Feedback Text Comments in Online Marketplaces: Implications for Trust Building, Price Premiums, and Seller Differentiation

• Published in: Information systems research Vol. 17; no. 4; pp. 392 - 414
• Main Authors: Pavlou, Paul A, Dimoka, Angelika
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.12.2006; The Institute for Operations Research and the Management Sciences (INFORMS); Institute for Operations Research and the Management Sciences
• Subjects: Auctions; Benevolence; Content analysis; Content analysis (Communication); Corporate image; Credibility; Customer feedback; Electronic commerce; Feedback; feedback mechanisms; feedback text comments; Information feedback; Information storage and retrieval systems; Internet marketing; Negative feedback; numerical ratings; online marketplaces; Opportunistic behavior; Positive feedback; Premiums; Price premiums; Retailing; seller differentiation; seller heterogeneity; Studies; Trust; United States
• ISSN: 1047-7047; 1526-5536
• DOI: 10.1287/isre.1060.0106

For online marketplaces to succeed and prevent a market of lemons, their feedback mechanism (reputation system) must differentiate among sellers and create price premiums for trustworthy sellers as returns to their 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 fully captured with crude numerical ratings. Building on the economics and trust literatures, this study examines the rich content of feedback text comments and their role in building a buyer’s trust in a seller’s benevolence and credibility. In turn, benevolence and credibility are proposed to differentiate among sellers by influencing the price premiums that a 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 to 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). The addition of text comments and benevolence helps explain a greater variance in price premiums ( R 2 = 50%) compared to the existing literature ( R 2 = 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 success of online marketplaces that primarily rely on the text comments (versus crude numerical ratings) to differentiate among sellers and prevent a market of lemon sellers. By integrating the economics and trust literatures, the paper has theoretical and practical implications for better understanding the nature and role of feedback mechanisms, trust building, price premiums, and seller differentiation in online marketplaces.