ZEW Study Examines Advantages and Disadvantages of Customer Rating Systems on the Internet

Customer reviews are intended to help other users to assess the quality of products or services.

Whether you book a hotel, look for a doctor or buy a product – you will come across customer reviews for almost everything on the internet. These are usually written by users who rate certain products or services with school grades or stars to help other users assess their quality. A study by ZEW Mannheim in cooperation with the University of Mannheim’s Department of Law discusses the advantages and disadvantages of rating systems and whether new regulations will help to better protect consumers.

“Rating systems are key components on online platforms. Users save time in their search and get valuable information to make better decisions,” says Rebecca Janßen, ZEW researcher in ZEW’s “Digital Economy” Unit, explaining some of the advantages for customers. Competition is also promoted when rather unknown companies can assert themselves on the market through good ratings. Comprehensible reviews also lead to fewer items being returned, which avoids costs and makes online shopping more sustainable. Finally, customer feedback helps companies to improve their products and services or bring new innovations to the market.

No transparency for users

However, rating systems only work as long as the ratings are authentic. For some time now, fake reviews have posed a threat to these systems. In order to counteract these deliberately manipulated, falsified reviews or reviews influenced by rewards or product tests, the Act against Unfair Competition (UWG) was amended based on EU requirements. The new regulation contains a ban on the transmission and commission of fake reviews as well as the misrepresentation of ratings. In addition, rating and transparency obligations were regulated in order to strengthen consumer protection.

“In principle, specific regulations are to be welcomed. However, the concept of fake ratings in particular is likely to be too narrow in this regulation, as it does not include ratings influenced by rewards. In this respect, the new regulation falls short of the already existing general ban on misleading information. The newly regulated rating and transparency obligations do not address such hidden incentives either,” notes legal scholar David Klock from the University of Mannheim. ZEW economist Janßen adds: “With the shortcomings that still exist, the problems are only inadequately solved. This reinforces doubts about the reliability of rating systems in the future.” Against this background, the two researchers argue for greater awareness among consumers so that they can better deal with the risks.