Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms

Abstract

There is growing evidence that consumers are influenced by Internet-based opinion forums before making a variety of purchase decisions. Firms whose products are being discussed in such forums are, therefore, tempted to try to manipulate consumer perceptions by posting costly anonymous messages that praise their products or by offering incentives to consumers to do so. This paper offers a theoretical analysis of the impact of such behavior on firm profits and consumer surplus. We examine a setting where two firms simultaneously introduce imperfect substitute experience goods of different qualities and consumers obtain quality information from an online forum. The most striking result of our analysis is that strategic manipulation can either decrease or increase the information value of online forums to consumers relative to the case where no manipulation takes place. Specifically, there exist settings where the presence of honest consumer opinions induces firms to reveal their own, more precise, knowledge of product qualities by manipulating the forums at relative intensities that are proportional to their actual qualities. However, if a sufficiently large number of consumers post honest opinions online forum manipulation is harmful to firms because its cost outweighs its benefits. The social overhead of online manipulation can be reduced by developing technologies that increase the unit cost of manipulation and by encouraging higher participation of honest consumers.

Keywords: Internet-based opinion forums, Strategic Manipulation

JEL Classification: D43, D82, D83, L14, L15