The Power of Negative Reviews on a Freemium Platform: An Event Study of Pay-for-Negative Regulation

The perceived value of online negative reviews is increasingly outweighing those of positive reviews. Negative information is treated as more diagnostic and persuasive than positive information of similar intensity (i.e. negativity bias). This raises regulatory challenges how to balance the effects of positive and negative reviews. Few studies have explored the effects of regulatory interventions that mobilize the power of negative reviews beyond detection and penalize fake reviews. This study examines a unique regulatory measure—pay-for-negative—in the context of a user-generated content platform. Specifically, we focus on whether the voluntary contributions of an online books platform can benefit from regulating negative reviews. Our findings suggest that when pay-for-negative regulation occurs, negative review valence has a surprisingly positive effect on voluntary contributions. Applying accessibility-diagnosticity theory, we conclude that pay-for-negative regulations lead to increases in voluntary contributions in both volume and likelihood as they increase the diagnosticity and awareness of negative reviews.

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