| By: |
Ishita Chakraborty (Yale School of Management);
Joyee Deb (Cowles Foundation, Yale University);
Aniko Oery (Cowles Foundation, Yale University) |
| Abstract: |
The propensity of consumers to engage in word-of-mouth (WOM) can differ after
good versus bad experiences. This can result in positive or negative selection
of user-generated reviews. We show how the strength of brand image -
determined by the dispersion of consumer beliefs about quality - and the
informativeness of good and bad experiences impact the selection of WOM in
equilibrium. Our premise is that WOM is costly: Early adopters talk only if
their information is instrumental for the receiver's purchase decision. If the
brand image is strong, i.e., consumers have close to homogeneous beliefs about
quality, then only negative WOM can arise. With a weak brand image, positive
WOM can occur if positive experiences are sufficiently informative. We show
that our theoretical predictions are consistent with restaurant review data
from Yelp.com. A review rating for a national established chain restaurant is
almost 1-star lower (on a 5-star scale) than a review rating for a comparable
independent restaurant, controlling for various reviewer and restaurant
characteristics. Further, negative chain restaurant reviews have more
instances of expectation words, indicating agreement over beliefs about the
quality, whereas positive reviews of independent restaurants feature
disproportionately many novelty words. |
| Keywords: |
Brand image, Costly communication, Recommendation engines, Review platforms, Word of mouth |
| Date: |
2020–08 |
| URL: |
http://d.repec.org/n?u=RePEc:cwl:cwldpp:2254r&r=all |