Online Reviews and Collaborative Service Provision: A Signal-Jamming Model

Abstract

We study the provision of collaborative services under online reviews, where the service outcome depends on the effort of both the service provider and the client. The provider decides not only her own effort but also the client's, at least to some extent. The client gives the review based on his net utility upon service completion. We develop a signal-jamming model in which the provider's inherent capability or type is unobservable, and the market infers the provider type through observable signals such as the service outcome, the client review, or both. We show that compared to the benchmark case when the service outcome is observed as a signal, the client review generally leads to less effort of both the provider and the client. The review hence tends to sacrifice the service effectiveness in favor of the efficiency of the client's effort input. Nevertheless, when clients incorporate private information about the provider type into their reviews, service providers are better motivated to devote effort. Interestingly, we find the provider's effort choices may be either strategic complements or substitutes. With a reasonable level of informativeness, online reviews could lead to favorable performance in service effectiveness, client effort efficiency, and provider type distinguishability. Surprisingly, we demonstrate that when both the review and the outcome are available, the provider may lack sufficient incentive to devote effort, resulting in inferior distinguishability of provider types. It thus illustrates that richer information may not necessarily generate favorable strategic outcomes.