The Vertical Spillover Effect of Online Ratings on Platform Competition: An Empirical Investigation

The familiar ’five-star’ ratings and reviews system makes it easy for consumers to use product evaluations across competing platforms to choose the product or service that is most likely to match their preferences. However, the ability to easily shop around for ratings and reviews raises a question from which platform consumers will then buy the product. We observe that the average rating for the same product can vary between platforms and build on the idea of spillover effects. Marketing literature has analyzed horizontal spillover effects from consumer perceptions of a product, service or a company to the sales of other entities in the same category. By contrast, we argue that diverging evaluations of the same product on different platforms can give rise to a vertical spillover effect that affects platform choice. To study the possible vertical spillover effect, we conduct an experimental study in a restaurant food delivery setting using a combination of incentive aligned behavioral experiments and experiments based on stated preferences method. Our results show that consumers tend to choose the platform where the chosen restaurant is rated higher, which suggests the presence of a vertical spillover effect.