The Importance of Being Earnest: Mandatory vs. Voluntary Disclosure of Incentives for Online Product Reviews

Abstract

Many sellers provide incentives for online product reviews to influence consumer perceptions and purchase decisions. Although relevant laws require disclosure of such incentives, compliance has been low as sellers fear that it may dampen consumer trust and product sales. We analyze product reviews on Amazon.com and find that reviews with mandatory disclosures by platform are associated with lower product ratings thus have a restraining effect on reviewers, while voluntary disclosures by reviewers lead to higher ratings, thus a potential upward bias due to moral licensing. Regression analyses based on propensity score matching show that in comparison with voluntary disclosures, mandatory disclosures have a positive effect on review helpfulness and sales, thus benefitting both sellers and consumers. These findings provide novel insight into the disclosure of incentives for online product reviews and have broad implications for e-marketing, consumer welfare, and public policy in the platform economy.