Channels of Impact: User Reviews When Quality Is Dynamic and Managers Respond

Abstract

We examine why many consumers privately provide a public good by posting reviews in online forums. Previous literature on motivation has focused mostly on goods with time-invariant quality such as books or movies. There, the primary motivation may be to impact the choices of other consumers. However, in dynamic-quality environments such as restaurants or hotels, consumers may also be motivated by the possibility that their reviews will impact the quality of the service directly. We examine this empirically in a scenario in which reviewers receive a credible signal that the service provider is listening. Specifically, we examine the managerial response feature allowed by many review platforms. We hypothesize that managerial responses will stimulate reviewing activity and that, because managers respond more and in more detail to negative reviews, we hypothesize that managerial response will particularly stimulate negative reviewing activity. Using a multiple-differences specification, we show that reviewing activity and particularly negative reviewing is indeed stimulated by managerial response. Our specification exploits comparison of the same hotel immediately before and after response initiation and compares a given hotel's reviewing activity on sites with review response initiation to sites that do not allow managerial response.

Keywords: user reviews, word of mouth, firm online communication, online communication, online platform design