The Review Economy Michael Luca Harvard Business School.

The Review Economy

Michael LucaHarvard Business School

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.

Search Trends - Yelp

Search Trends – Trip Advisor

Search Trends – Angie’s List

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.

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

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?

Chains are different

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

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

The 3 R’s

• Relevant?– What information is relevant to consumers?– Do online reviewers have this information?

• Representative?– Sample? Sample size?– Tastes?

• Real?– Is this information trustworthy?

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.

Production of Content

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.

Distribution of Reviews

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

How do platforms vet reviews?

• Authentication

• Reviewer reputation

• Spam detection

Fake review warning signs

• No formal authentication

• No spam detection

• Extreme ratings

• Unknown reviewers

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

Thank you!