Product Quality and Information Sharing in the Presence of Reviews

This paper investigates the problem of information sharing between a retail platform and a manufacturer in a supply chain. We develop a stylized model salient to which is that the product’s quality is a priori unknown to customers, who can infer it from customer-generated reviews. The platform, in turn, has access to private information concerning the relationship between quality and demand, and the manufacturer can choose to acquire said information to help determine the quality of its product accordingly. Our analysis yields three main insights. First, information sharing in and of itself induces the manufacturer to improve quality. Second, under a wholesale price contract, information sharing and product reviews together have a negative effect on product quality: When each firm is able to adjust its price in response to the quality signal, it benefits the manufacturer and hinders the platform. Consequently, the presence of reviews discourages the platform from sharing information, and the manufacturer tends to produce a lower-quality product. Finally, the negative effect of product reviews on the supply chain can be mitigated when the platform can share less accurate information or when the platform and manufacturer make a commission contract, rather than a wholesale price contract. This paper was accepted by Jayashankar Swaminathan, operations management. Funding: D. Shin received financial support from the Hong Kong University of Science and Technology grant IGN17BM09. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4746 .