Universität Paderborn » SFB 901 » Projects » Project Area A » A4 » Abstract

Subproject A4 (since July 1, 2015)

Empirical Analysis in Markets for OTF Services


In this subproject, we empirically and experimentally analyze customer reviews and certifications as instruments to reduce information asymmetries in electronic markets for composed services. As still-to-be-developed OTF markets are a specific type of electronic markets, reducing information asymmetries in these OTF markets is essential to prevent the market from failing (in the sense of a "market for lemons"). Whereas the source of the reputation differs, both instruments - customer reviews and certifications - can be described as contributions  to reputation formation. When examining the suitability of these instruments to reduce information asymmetries, we consider the influence of specific OTF market characteristics, particularly in light of the possible consequences of opportunistic behavior. The methods we apply in this subproject involve empirical studies using self-collected data from already existing electronic markets, which have one or more characteristics that are similar to the OTF market to be developed in the project. We will also conduct laboratory experiments in the Paderborn BaER-Lab, the Business and Economic Research Laboratory, to examine the issues to be answered in the subproject.

Purpose of Subproject A4:

  • Analyze causal effects of customer reviews and certifications on service quality.
  • Investigate opportunities and limits of customer reviews and certifications that help to reduce information asymmetries in OTF markets.
  • Design and evaluate different manifestations of customer review systems and certifications that reduce information asymmetries in OTF markets.

Specifically, the subproject is organized into the following areas.

Empirical Investigation of Service and Market Characteristics

In this area, we investigate the influence of different combinations of the descriptiveness of services as well as the credibility of the service descriptions on the impact on instruments that foster the (gradual) emergence of reputation.

One possible approach is to develop an experimental design which differs with respect to service and market characteristics (that are similar to the OTF market) in order to investigate consumers’ purchasing decisions under various reputation systems as well as market and service characteristics.

In a further step, we econometrically analyze the influence of market characteristics on distributional properties of customer reviews of services, using real-world data. As market characteristics can have a substantial influence on the customer reviews of a service, market characteristics have to be taken into account when interpreting the customer review score of a particular service. This is likely to be important when comparing service qualities from markets with different characteristics.

Empirical Investigation of Opportunistic Behavior

In this area, we focus on the influence of fraudulent customer reviews on the efficiency of instruments that are designed to reduce information asymmetries in electronic markets.

In particular, this means:

  • Investigating the influence of opportunistic behavior of OTF market agents on the efficacy of customer reviews as an instrument to reduce information asymmetries.
  • Examining two forms of opportunistic behavior: Fraudulent customer reviews and changing the identity of providers with negative customer reviews.
  • Designing and evaluating measures to prevent opportunistic behavior in OTF markets.

One approach to address identity changes of providers is to adopt an already developed experimental design. The original purpose was to investigate the sellers’ usage of reputation systems. Part of the design is that sellers can use a positive reputation to increase short-term revenues by selling low-quality products and, as a consequence, receiving negative customer ratings which, in turn, leads to a decrease in the relevant reputation score. Experimental evidence suggests that individuals do in fact exhibit a tendency towards this behavioral pattern. An interesting research question is, therefore, whether the possibility of identity changes increases this kind of behavior, because negative reputation could be changed to a neutral one at low costs. In the second step, after investigating the effect of identity changes on the efficacy of reputation systems, instruments to reduce this impact will be engineered and verified in the lab. 

Empirical Analysis on the Composition of Services

The OTF market is a decentralized market place with many service providers and OTF providers who are responsible for the composition process and customer contact. This market structure causes challenges on different levels:

Customer reviews describe the experience with composed services. The first challenge is to disaggregate these composed service reviews to assessments of single services supplied by service providers. To approach this challenge, we empirically investigate already existing review platforms, on which composed services are assessed. Furthermore, we plan to analyze specific multidimensional customer review systems in electronic markets concerning their suitability to provide for the quality of the composition of OTF services. The aim is to shed light on an individual’s aggregation heuristics applied when giving customer reviews to a composed service. This knowledge can, in turn, be applied when aggregating the customer reviews of single services into a service composition on the OTF market.

(Non-technical) certificates can be used to signal the high quality of products. However, there must be authorities which verify, certify and progressively audit the high quality of single or composed services. These additional roles come along with further sources of strategic behavior.

In the first step, we focus on the OTF provider. Specifically, we investigate behavioral patterns of the OTF provider, which can possibly undermine the effectiveness of certificates as a quality assurance mechanism. In the second step we will develop instruments to reduce possible undesirable behavioral patterns.

Here, we investigate the impact of certificates as an instrument to signal superior quality in the OTF market. We face the strategic behavior of all market participants. The figure shows the players in the OTF market and the potential types of strategic behavior.