Fake Detection as a Service: Implication of False Alarm in the Online Marketplace

Almost all consumers use online reviews to decide which product to purchase among a plethora of products on an online marketplace. Though honest reviews are useful, fake or biased reviews pose numerous problems for an online marketplace and her stakeholders as they can misrepresent the quality of a product and mislead consumers. As a remedy, a marketplace can use a free add-on fake review detection service (i.e., fake detection as a service, FDAS), which provides adjusted rating scores, to help consumers separate the wheat from the chaff in a hodgepodge of gushing reviews and identify the true quality of products. One would expect that the consumers, the marketplace and honest sellers on the marketplace would benefit from an accurate FDAS. While we investigate whether and how this free service is effective for the marketplace and her stakeholders, we will show that the marketplace has an incentive to interfere and degrade the quality of such a service. We find that high quality sellers can largely benefit from the FDAS even when the FDAS is not very accurate. Paradoxically, when the FDAS conveys inaccurate information to consumers, the marketplace and sellers can benefit from the FDAS because inaccurate detection helps mitigate price competition between the sellers. This harms the consumers. Furthermore, we identify when and how the marketplace has an incentive to degrade the quality of the FDAS. Our results suggest that, under certain circumstances, a regulator needs to step in to protect the marketplace sellers and consumers.