In the last few decades, retail has shifted from physical stores to e-commerce. During the rise of this online retailing, companies as Amazon have captured whopping market share across almost all segments of retail. Amazon opened up its platform and allowed other retailers to offer their products on their platform. However, along with the ascent of online shopping, several problems arose. Maybe the biggest flaw of the digital transaction of retail products, is product and seller uncertainty.
As discussed in the fifth lecture of the course Information Strategy, interaction per platforms as Ebay and Amazon give rise to information asymmetry problems as moral hazard and adverse selection. Buyers are uncertain about the quality and performance of products (product uncertainty) and distrust sellers’ intentions to truthfully promote their products (seller uncertainty). To overcome above-mentioned problems, reputation systems were implemented to platforms as Amazon. Through reviews and ratings awarded to sellers, buyers are better able to judge whether sellers are trustworthy.
Unfortunately, according to the recent research of consumer group Which?, these reputation systems are corrupted quite easily. Which? claims that online sellers on Amazon’s platform are offering people free goods in exchange for positive products reviews. In his research, an Which? investigator joined several “rewards for reviews” groups and was instructed to give a five-star review in order to receive full refunds for ordered products. Additionally, in an investigation of BBC 5, similar results were achieved as they were able to buy false five star reviews on the supposedly trustworthy review website Trustpilot.
Although Amazon claims to not tolerate false reviews and threatens to terminate accounts supplying false reviews, these findings do indicate the shortcomings of retail platforms as Amazon. If Amazon is not able to counter the threat to the legitimacy of its reputation system, they could face an enormous backlash in its competitiveness and growth, similar to what Ebay experienced in 2004 when consumers lost faith in the trustworthiness of products sold on Ebay’s platform. Amazon would be wise to take this threat seriously and respond quickly and adequately.
https://www.bbc.com/news/business-45916368
Hi Koen,
Interesting article, which perfectly describes what is wrong with the current reviewing systems of these companies. I do wonder, since it seems to me that it is very hard to distinguish fake reviews from true reviews, how will these companies stand up to these fake reviews? What will they do to prevent them? I am very interested in what your ideas on how companies should cope with these problems!
Kind regards,
Justin
Interesting insight on the lecture material with an understandable real-world example! To go further into depth on your blog, how would you assess the problems from Amazon’s recommendation engine if this problem becomes more widely spread? Do you believe these problems could become similar to E-Bay’s problems after 2004 and cause slower growth? I would love to hear your feedback on this!
Hi Koen,
Thank you for sharing your thoughts! It is a quite interesting topic you’re addressing. Companies like amazon are becoming, if they are not already, leaders in the market, ruling out the competition that stand in their way. As you said, review systems are supposed to decrease the information asymmetry. I can imagine that Amazon relies on their reviews to stay ahead of their competition, but this is definitely not the solution to accomplish it. But what would happen if also other companies would publish false reviews and Amazon is not the first? Then the reason for introducing recommendation systems is totally overruled.