Single-Dimensional versus Multi-Dimensional Product Ratings in Online Marketplaces for Experience Goods

We examine the strategic implications of multi-dimensional and single-dimensional rating schemes in online review platforms when consumers have heterogeneous preferences for different quality dimensions. We find that attribute specialization and firm differentiation play significant roles in determining the impact of the rating scheme on the platform, consumers, and the society. If at least one firm specializes in an attribute, then the platform is better off implementing multi-dimensional rating scheme if and only if the firms are differentiated. Interestingly, while the consumers' uncertainty is always reduced by multi-dimensional scheme, the consumers are better off under the multi-dimensional rating scheme only when the firms are not differentiated. The results show that the focus on information transfer aspect of rating schemes provide only a partial understanding of the true impact of rating schemes and the platform's optimal choice of rating scheme depends critically on the product markets served by the platform.