The Impact of An Interaction between Product Quality and Perceived Risk on Seller Profit

Purpose: This study examines the effect of full information disclosure on seller profit when there exists information asymmetry between sellers and buyers, focusing on the risk averseness of buyers. By investigating the interaction between product quali ty and perceived risk through online sales data, we attempt to figure out the incentive structure of full inf ormation disclosure specifically when buyers are risk averse, so that we can suggest more feasible information disclosure strategy to sellers . Research design, data and methodology: Our empirical model analyzes the sales data of collectible goods from a ma jor online seller using Poisson regression. In our model, we have specifically considered risk averseness of buyers by estimating the interaction effect between the product quality and perceived risk on seller profit, aiming for a more precise empirical analysis on sellers incentive structure of full disclosure . Results: Our empirical analysis strongly supports the effect of interaction between product quality and perceived risk, showing that th e incentive for full disclosure is much stronger when product quality is higher, and vice versa. Therefore, sellers are strongly encouraged to voluntarily reveal product weaknesses when their product quality is higher than average, w hile it is more profita ble to hide any product defects when quality claim is lower than average Conclusions: This study supports the related literature by confirming economic incentives for full disclosure, and also supplements and strengthens previous studi es by presenting tha t the effect of interaction between product quality and perceived risk strongly affects seller profit. Our unique finding supports both mandatory disclosure and voluntary disclosure arguments and presents practical implications to marketing manage rs by sug gesting that seller’s incentive for revealing weaknesses depends on the level of seller s product quality.