The Influence of Online Word-of-Mouth on Long Tail Formation

Decision Support Systems, 2012

8 Pages Posted: 25 Oct 2013

See all articles by Bin Gu

Bin Gu

Boston University - Questrom School of Business

Qian Tang

Singapore Management University - School of Information Systems

Andrew B. Whinston

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

Date Written: October 22, 2012

Abstract

The long tail phenomenon has been attributed to both supply side and demand side economies. While the cause on the supply side is well-known, research on the demand side has largely focused on the awareness effect of online information that helps consumers discover new and often niche products. This study expands the demand side factors by showing that online information also influences the long tail phenomenon through the informative effect, which affects consumers' evaluation of product quality. We examine the informative effect in the context of online WOM. Two sets of theories suggest opposite directions for the implication of the informative effect. Information search and information cascade literatures indicate that WOM provides additional information to consumers, reduces the occurrence of information cascade, and encourages the formation of long tail. Studies on behavior heuristics, however, suggest that consumers tend to ignore online information inconsistent with their prior beliefs, which leads to a rich-gets-richer effect for popular products and curtail the formation of the long tail.We empirically examine the conflict by analyzing different impacts of online WOM across product popularity and WOM ratings. Using a panel data collected from Amazon.com, we show that positive reviews improve the sales of popular products more than the sales of niche products, while negative reviews hurt niche products more than popular products. The results are consistent with the prediction of the behavior heuristic and suggest that online WOM restrains the formation of long tail.

Keywords: long tail, word-of-mouth, customer review, information cascade

Suggested Citation

Gu, Bin and Tang, Qian and Whinston, Andrew B., The Influence of Online Word-of-Mouth on Long Tail Formation (October 22, 2012). Decision Support Systems, 2012, Available at SSRN: https://ssrn.com/abstract=2343836 or http://dx.doi.org/10.2139/ssrn.2343836

Bin Gu

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Qian Tang

Singapore Management University - School of Information Systems ( email )

80 Stamford Road
Singapore, 178902
Singapore

Andrew B. Whinston (Contact Author)

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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