Promotional Chat on the Internet

Marketing Science 25.2 (2006): 155-163

26 Pages Posted: 26 Jan 2014

See all articles by Dina Mayzlin

Dina Mayzlin

University of Southern California - Marshall School of Business

Date Written: December 13, 2004

Abstract

Chat rooms, recommendation sites, and customer review sections allow consumers to overcome geographic boundaries and to communicate based on mutual interests. However, marketers also have incentives to supply promotional chat or reviews in order to influence the consumers’ evaluation of their products. Moreover, firms can disguise their promotion as consumer recommendations due to the anonymity afforded by online communities. We explore this new setting where advertising and word of mouth become perfect substitutes since they appear indistinguishable to the consumer. Specifically, we investigate whether here word of mouth remains credible and whether firms choose to devote more resources promoting their inferior or superior products.

We develop a game theoretic model where two products are differentiated in their value to the consumer. Unlike the firms, the consumers are uncertain about the products’ quality. The consumers read messages online that help them decide on the identity of the superior product. We find a unique equilibrium where online word of mouth is persuasive despite the promotional chat activity by competing firms. In this equilibrium, firms spend more resources promoting inferior products, in striking contrast to existing advertising literature. In addition, we discuss consumer welfare implications and how other marketing strategies may interact with promotional chat.

Keywords: advertising, word-of-mouth, source credibility, Internet marketing

Suggested Citation

Mayzlin, Dina, Promotional Chat on the Internet (December 13, 2004). Marketing Science 25.2 (2006): 155-163. Available at SSRN: https://ssrn.com/abstract=2384745

Dina Mayzlin (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3360 (Phone)

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