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The Review Economy Michael Luca Harvard Business School.

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Presentation on theme: "The Review Economy Michael Luca Harvard Business School."— Presentation transcript:

1 The Review Economy Michael Luca Harvard Business School

2 Introduction How do consumers learn about product quality in the internet age? Proliferation of consumer review websites – Yelp – Trip Advisor – Angie's List Part of crowdsourcing movement. The review process.

3 Search Trends - Yelp

4 Search Trends – Trip Advisor

5 Search Trends – Angies List

6 Introduction Reviews present a new way to learn about product quality. Compare with: – Chain affiliation / advertising – Expert reviews / rankings – Quality disclosure laws Each imperfectly addresses information problems.

7 Extensive information, but… Information can be noisy and difficult to verify

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10 The impact of reviews on sales The bottom line: Yelp works 1 star increase leads to a 5% increase in revenue for independent restaurants What about chains?

11 Chains are different Chains impose standards – menus, etc Spend on branding Quality relatively known A turkey sandwich:

12 Consumer Reviews and Public Policy Use reviews to guide disclosure policy – Focus disclosure on gaps left by reviews – Use reviews to identify trouble areas (work with city governments) Encourage reviews as alternative form of reporting Ensure integrity of reviews

13 The 3 Rs Relevant? – What information is relevant to consumers? – Do online reviewers have this information? Representative? – Sample? Sample size? – Tastes? Real? – Is this information trustworthy?

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15 What is a promotional review? I was in need of teeth whitening and my friend referred me to Southland Dental… Pain or non pain, it was very much worth it This is a sample from a help-wanted ad on Mechanical Turk. (Source: NY Times) Promotional reviews: left by restaurant or employee of a restaurant.

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21 Production of Content

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23 What does a fake review look like? Might expect distribution of fake reviews to be bimodal. Reviewers with more Yelp social capital are less likely to submit fake reviews: – They have many reviews. – They have many Yelp friends.

24 Distribution of Reviews

25 How serious is gaming? Extensive gaming (16% across restaurants) Not simply a matter of bad apples, but of incentives: – More prevalent when restaurant new or rating has fallen. Elsewhere: – TripAdvisor – eBay – others

26 How do platforms vet reviews? Authentication Reviewer reputation Spam detection

27 Fake review warning signs No formal authentication No spam detection Extreme ratings Unknown reviewers

28 What can we do? As consumers: – Look for warning signs. As platforms: – Encourage legitimate reviews – Vet reviews – Detect and eliminate illegitimate reviews As policymakers: – Vet review platforms – Identify and regulate bad practices

29 Thank you!


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