Conflict of Interest in Third-Party Reviews: An Experimental Study

Abstract

This paper experimentally examines a conflict of interest (COI) situation in which a third-party reviewer provides a product assessment for a firm but also potentially benefits economically from the assessed firm’s rival. We present a behavioral economics model to examine how reviewer competition and reciprocal relationships between firms and reviewers affect decision outcomes, followed by an experiment to investigate the model predictions. The experimental results are consistent with the behavioral model predictions. In particular, we empirically document a COI problem where the third-party reviewer’s report is biased, and consequently, the assessed firm underinvests in product quality. We find that this adverse result is driven by reciprocity between the third-party reviewer and the assessed firm’s rival. When we introduce an additional reviewer such that there is competition among the third-party reviewers, reporting biases are alleviated, and firms raise product quality levels. Interestingly, however, when informal agreements exist between the third-party reviewer and the assessed firm’s rival, reviewer competition exacerbates biases even more compared with the case without competition, further undermining the assessed firm’s incentive to invest in product quality. This paper was accepted by Eric Anderson, marketing.

Profitability of Noisy Certification in the Presence of Loss Averse Buyers*

“…Overall, the experimental sessions provided observations for 2610 buyer or seller decisions based on 1,305 transactions. The instructions follow recent experimental research (see Kim et al [2019]; Chung et al [2020]; and Ham et al [2021]), and are included in Appendix B.…”

The value of context-specific studies for marketing

“…Third-party reviews could be biased, and this bias may be because of a conflict of interest. Austin, 1984;Eliashberg & Shugan, 1997;Ham et al, 2021 Some advertisers use films to reach audiences through product placement, which may have an effect on brand awareness and purchase intent.…”

“…This industry also gives rise to some specific collaborators. For example, in the movies industry, critics and critics aggregators are important and play a specific role unlike in any other industry (Austin, 1984;Eliashberg & Shugan, 1997;Ham et al, 2021). Finally, competitors are tough to define since a history of M&As among studios, distributors, and theaters have blurred some of the old rivalries, and now most players work with all others or even co-finance new projects.…”