The Economic Value of Online Reviews

Marketing Science, Forthcoming

37 Pages Posted: 11 Jun 2015

See all articles by Chunhua Wu

Chunhua Wu

University of British Columbia (UBC) - Sauder School of Business

Hai Che

Indiana University - Kelley School of Business

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School

Xianghua Lu

Fudan University - School of Management

Date Written: April 8, 2015

Abstract

This paper investigates the economic value of online reviews for consumers and restaurants. We use a dataset from Dianping.com, a leading Chinese website providing user-generated reviews, to study how consumers learn from reading online reviews the quality and cost of dining a restaurants. We propose a learning model that has three novel features: (1) different reviews offer different informational value to different types of consumers; (2) consumers learn own preferences, and not the distribution of preferences among the entire population, for multiple product attributes; and (3) consumers update not only the expectation but also the variance of their preferences. Based on estimation results, we conduct a series of counterfactual experiments and find that the value from Dianping is about 7 CNY for each user, and about 8.6 CNY from each user for the reviewed restaurants in this study. The majority of the value comes from reviews on the quality of restaurants, and contextual comments are more valuable than numerical ratings in reviews.

Keywords: Online Reviews, User-generated Content, Consumer Choice under Uncertainty, Learning, Economic Value to Consumer and Firm

Suggested Citation

Wu, Chunhua and Che, Hai and Chan, Tat Y. and Lu, Xianghua, The Economic Value of Online Reviews (April 8, 2015). Marketing Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2616418

Chunhua Wu

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Hai Che (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Xianghua Lu

Fudan University - School of Management ( email )

670 Handan Road
Shanghai
China

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