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Measuring the Demand Effects of Formal and Informal Communication : Evidence from Online Markets for Illicit Drugs

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  • Luis Armona

Abstract

I present evidence that communication between marketplace participants is an important influence on market demand. I find that consumer demand is approximately equally influenced by communication on both formal and informal networks- namely, product reviews and community forums. In addition, I find empirical evidence of a vendor's ability to commit to disclosure dampening the effect of communication on demand. I also find that product demand is more responsive to average customer sentiment as the number of messages grows, as may be expected in a Bayesian updating framework.

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  • Luis Armona, 2018. "Measuring the Demand Effects of Formal and Informal Communication : Evidence from Online Markets for Illicit Drugs," Papers 1802.08778, arXiv.org.
    • Handle: RePEc:arx:papers:1802.08778
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    3. Matt Taddy, 2013. "Multinomial Inverse Regression for Text Analysis," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 108(503), pages 755-770, September.
    4. Michael Luca & Georgios Zervas, 2016. "Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud," Management Science, INFORMS, vol. 62(12), pages 3412-3427, December.
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