Still Selling
Disclosure in Incentivized Reviews: Does It Protect Consumers?
Sungsik Park, Woochoel Shin & Jinhong Xie
Management Science, forthcoming
Abstract:
The well-documented rating inflation of incentivized reviews (IRs) can mislead consumers into choosing a product that they would otherwise not buy. To protect consumers from this undesirable influence, the U.S. Federal Trade Commission recommends that reviewers conspicuously disclose any material connection they may have with sellers. In theory, such disclosures safeguard consumers by motivating reviewers to be truthful and inducing consumers to discount inflated IR ratings. Our research finds, however, that IR disclosure accomplishes neither. Specifically, our empirical analysis of consumer reviews on Amazon reveals that, even with disclosure, (1) rating inflation of IRs remains, and (2) this inflation boosts sales at consumers' expense. Finally, we propose an alternative approach to eliminate rating inflation of IRs and empirically demonstrate its effectiveness. These findings have important implications for consumers, firms, and ongoing policy discussions around IRs.
Time perspective and helpfulness: Are communicators more persuasive in the past, present, or future tense?
David Fang & Sam Maglio
Journal of Experimental Social Psychology, January 2024
Abstract:
When people share their experiences, they can communicate seemingly identical information from different time perspectives. Time perspective manifests in words -- specifically, verbs in the past tense (e.g., "the experience was great"), the present tense (e.g., "the experience is great"), or the future tense (e.g., "the experience will be great"). This research considers whether this linguistic shift in time perspective impacts how others interpret the message. Two naturalistic studies (sourcing over 2 million Amazon reviews) and three pre-registered lab experiments (N = 1259) find that reviews written in the present tense (relative to the past or future tense) receive higher helpfulness ratings through a process of heightened concrete construal. Implications at the intersection of communication, psycholinguistics, and persuasion are discussed.
The Role of Repugnance in Markets: How the Jared Fogle Scandal Affected Patronage of Subway
John Cawley et al.
NBER Working Paper, October 2023
Abstract:
Economics has long studied how consumers respond to the disclosure of information about firms. We study a case in which the disclosed information is unrelated to the product or firm leadership, but which could still potentially affect consumer patronage through the mechanism of repugnance, as described in Roth (2007). The information in this case concerns the arrest of Jared Fogle, the advertising pitchman for the Subway sandwich franchise, who was arrested in 2015 on charges of sex with a minor and child pornography. We study how the disclosure of this information, which was widely covered in the media, affected patronage of Subway. We estimate synthetic control models using data from a large nationwide survey of consumers regarding the restaurants they patronize. Despite the close and long-standing association of Jared Fogle with Subway, and heavy publicity of his crimes, we consistently fail to detect any effect of the Jared Fogle scandal on the probability of visiting a Subway restaurant. These results contrast with past studies of negative information disclosure, which tend to find negative impacts on sales, revenue, or stock price of the relevant companies. The absence of an effect in this case suggests that repugnance did not drive demand, and that consumers largely separated the offenses of a symbol of the firm from the products of the firm.
Do Trade Associations Matter to Corporate Strategies?
Gerard Hoberg & Ekaterina Neretina
University of Southern California Working Paper, September 2023
Abstract:
This paper uses textual analysis and plausibly exogenous instruments based on geographic networks to assess the role of trade associations in forming corporate strategies. Companies are most likely to join trade associations when innovative opportunities have declined, and they are older and larger. Joining associations helps members to increase profits and markups, improve risk management, find acquisition partners and improve efficiency. To assess mechanisms regarding higher profits, we consider high dimensional analysis of geographic market exclusivity using firm-pairs and hundreds of strategic decisions to operate in specific markets. We find that members of associations jointly avoid entering geographic markets when peers have already entered. Overall we find strong support for the conclusion that associations bring positive and mutually beneficial gains to their members and their industries, and some evidence of an externality in the form of anti-competitive market-exclusion strategies.
The Price of Short-Term Housing: A Study of Airbnb on 26 Regions in the United States
Wenzhen Lin & Fan Yang
U.S. Department of Housing and Urban Development Working Paper, September 2023
Abstract:
This study offers an in-depth analysis of the factors affecting Airbnb listing prices, using a comprehensive dataset that spans 100,275 listings across 26 U.S. regions and 7,695,428 review comments. By integrating text-mining techniques like sentiment analysis and topic modeling with traditional hedonic and quantile regression models, the paper identifies key attributes that resonate with Airbnb users. It confirms the significance of well-known numerical pricing determinants, while shedding light on the impact of positive and negative customer reviews and review topics. Specifically, negative reviews have twice the influence on listing prices as positive reviews, a ratio that increases to fourfold for lower-priced listings. Furthermore, reviews related to the host and location are found to have the most significant impact on prices. Notably, the influence of reviews diminishes for listings situated farther from the city center. The study also uncovers the existence of a lag effect of review, showing that reviews require time to significantly influence listing prices. Employing New York City data, the study tracks changes in review impact during the COVID-19 pandemic and finds a temporary decline followed by a rebound in influence. Overall, the study enriches existing literature on short-term rental pricing by taking into account the content and type of customer reviews, offering a more comprehensive understanding of pricing dynamics in the sharing economy.