Do Online Reviews Matter? - An Empirical Investigation of Panel Data

Abstract:     
With the proliferation of online user review systems, there has been a growing interest in understanding how they influence consumers' purchase decisions. In this paper, we explore the dynamic process of online user reviews for motion pictures, and its relationship with movies' daily box office performance. We characterize online user reviews through a dynamic simultaneous system, in which we separate the effects of online user reviews as both a precursor to and an outcome of box office revenues. First, in contrast to the common wisdom that better user reviews lead to more sales, we showed that the rating of online user reviews has no significant impact on movies' box office revenues. Second, we found that box office sales are significantly influenced by the number of online postings. Our findings suggest that it is the underlying word-of-mouth effect that plays a dominant role rather than the user ratings. Online user review sites help reveal the underlying word-of-mouth process, but the sites themselves may not play as significant a role in influencing sales as commonly expected.

Keywords: Online User Review; Word-of-Mouth; Product Sale; Motion Picture

JEL Classifications: L82, M31

Working Paper Series