| Abstract: |
This paper investigates the value of branding and how it is changing in
response to a large increase in consumer information provided by online
reputation mechanisms. As an application of umbrella branding, theory suggests
much of the value to firms of chain affiliation results from asymmetric
information between buyers and sellers. As more information becomes available,
consumers should rely less on brand names as quality signals and the ability
for firms to extend reputations across heterogenous outlets should decrease.
To examine this empirically, this paper combines a large, 15 year panel of
hotel revenues with millions of online reviews from multiple platforms and
performs a machine learning analysis of review text to recover latent,
time-varying dimensions of firm quality. I find that branded, or
chain-affiliated, hotels earn substantially higher revenues than equivalent
independent hotels, but that this premium has declined by over 50% from 2000
to 2015. I find that this can be largely attributed to an increase in online
reputation mechanisms, and that this affect is largest for low quality and
small market firms. Numerous measures of the information content of online
reviews show that as information has increased, independent hotel revenue
grows substantially more than chain hotel revenue. Finally, the correlation
between firm revenue and brand-wide reputation is decreasing and the
correlation with individual hotel reputation is replacing it. |