The Dynamics of Online Word-of-Mouth and Product Sales: An Empirical Investigation of the Movie Industry
Journal of Retailing, Vol. 84, No. 2, pp. 233-242, 2008
31 Pages Posted: 4 Mar 2008 Last revised: 27 Sep 2011
Date Written: May 29, 2011
Abstract
There are growing interests in understanding how word-of-mouth (WOM) on the Internet is generated and how it influences consumers' purchase decisions at retail outlets. A unique aspect of the WOM effect is the presence of a positive feedback mechanism between WOM and retail sales. We characterize the process through a dynamic simultaneous equation system, in which we separate the effect of online WOM as both a precursor to and an outcome of retail sales. We apply our approach to the movie industry, showing that both a movie's box office revenue and WOM valence significantly influence WOM volume. WOM volume in turn leads to higher box office performance. This positive feedback mechanism highlights the importance of WOM in generating and sustaining retail revenue.
Keywords: Online user reviews, Word-of-mouth, e-Commerce, Motion picture, Simultaneous equations
JEL Classification: L82, M31
Suggested Citation: Suggested Citation
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