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

See all articles by Wenjing Duan

Wenjing Duan

George Washington University - School of Business

Bin Gu

Arizona State University (ASU) - Department of Information Systems

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

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

Duan, Wenjing and Gu, Bin and Whinston, Andrew B., The Dynamics of Online Word-of-Mouth and Product Sales: An Empirical Investigation of the Movie Industry (May 29, 2011). Journal of Retailing, Vol. 84, No. 2, pp. 233-242, 2008. Available at SSRN: https://ssrn.com/abstract=1101054

Wenjing Duan (Contact Author)

George Washington University - School of Business ( email )

2121 I Street NW
Washington, DC 20052
United States

Bin Gu

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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