Effect of online product reviews on third parties' selling on retail platforms

Online retailers open their platforms to invite third-party sellers to sell directly on their platforms for commissions. Considering that most consumers make purchase decisions using online product reviews (OPRs) as a reference, we develop a game-theoretic model to explore how OPRs impact a third-party seller's decision to sell on an open retail platform and the platform retailer's profit. Based on two product attributes-quality and fit-we distinguish two cases, quality dominates fit and fit dominates quality. We find that, under symmetric reviews (i.e., reviews favoring neither the retailer's nor the third party's product), higher credibility reviews homogenize (heterogenize) products, thus intensifying (relieving) competition between the retailer and the third party in the quality-dominates-fit (fit-dominates-quality) case. However, even under asymmetric reviews, the third party cannot be induced to sell on the retail platform until considering the quality of the retailer's review systems, which may lead to a platform effect on OPRs. The platform effect strengthens the importance of reviews, so it may enlarge the product differentiation created by asymmetric reviews. Particularly, when the platform effect and the review asymmetry are high enough, the retailer can not only induce the third party to sell on its platform but also benefit in both the quality-dominates-fit and the fit-dominates-quality cases.