- Xitong Li. How Does Online Reputation Affect Social Media Endorsements and Product Sales? Evidence from Regression Discontinuity Design (Job market paper)
Despite the increasing importance of social media marketing, little research has explored what factors consumers would take into account in the decision-making of endorsing a product to their peers with established ties via social media. This paper examines if online reputation (restaurants' displayed Yelp ratings), which helps update consumers' perception of product value, is a causal factor that affects consumers' decisions of endorsing via Facebook and purchasing products (the restaurants' vouchers). We build a stylized Bayesian learning model and derive the hypotheses: (1) a higher online reputation leads to more social media endorsements and voucher sales, but only when it is built upon a sufficient amount of review ratings; (2) these effects are greater for restaurants with more reviews; and (3) these effects are greater for restaurants with a larger variance in the review ratings. Interestingly, the third hypothesis contrasts to the predictions by some established theories (e.g., cue diagnosticity theory). We test the hypothesis using data of Groupon and LivingSocial deals. To identify the causal effects of online reputation, we use a regression discontinuity design by exploiting the institutional feature that displayed Yelp ratings are rounded to the nearest half star. The empirical results largely support the hypotheses. In particular, we find the effect of displayed Yelp ratings on Facebook Likes is greater when the variance of ratings is larger, suggesting that perhaps consumers are risk averse when they consider endorsing a product to their peers. Yet, the effect on voucher sales does not significantly differ with the variance. This paper concludes with important implications for theory and practice.
- Xitong Li, Lynn Wu. Herding and Social Media Word-of-Mouth: Evidence from Groupon.
Understanding the various social influence mechanisms that affect consumers' online shopping behaviors has become more important with the widespread adoption of social media. This study explores how herding and social media word-of-mouth (WOM) drive product sales. While herding helps updating consumers' beliefs about the product quality, social media WOM can have an advertising effect in addition to providing quality signals. Using a panel data set consisting of about 500 deals from Groupon.com, we find both herding and Facebook-mediated WOM lead to additional product sales, whereas Twitter-mediated WOM has no significant impact on sales. More importantly, we theorize the interaction effect between herding and social media WOM and show herding and Facebook-mediated WOM are complements in driving product sales. The complementarity supports the current practice of daily-deal sites where both mechanisms are often implemented together. To uncover the underlying mechanisms, we find the herding effect is more salient for experience goods than for search goods, but the effect of Facebook-mediated WOM does not significantly differ between the two product categories. The comparison suggests that signaling product quality is the underlying mechanism of herding, while the effect of Facebook-mediated WOM is primarily through advertising, rather than signaling. Our findings are robust to a number of different estimation specifications and identification strategies.
Work in Progress
- Xitong Li. An Empirical Analysis of the Impact of Daily-Deal Promotions on Restaurants’ Online Reputation. Data analysis in progress.
- Xitong Li. Does Government-Authorized Score Cannibalize or Complement User-Generated Reviews? Data collection in progress.
- Xitong Li. Using Text Mining to Predict Business Exists. Data collection in progress.
- Xitong Li. How Does Online Reputation Affect Social Media Endorsements and Product Sales? Evidence from Regression Discontinuity Design.
- The 24th Workshop on Information Systems Economics (WISE 2013). Milan, Italy. December 19-20, 2013.
- Xitong Li, Lynn Wu. Measuring Effects of Observational Learning and Social-Network Word-of-Mouth (WOM) on the Sales of Daily-Deal Vouchers.
- The 23nd Workshop on Information Systems Economics (WISE 2012). Orlando,
FL, USA. December 15-16, 2012.
- The 46th Hawaii International
Conference on System Sciences (HICSS 2013)
(Best Paper Award in Internet and the Digital Economy Track). Maui, HI, USA, January 7-10, 2013.
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