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Promotional Chat on the Internet

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  • Dina Mayzlin

    () (Yale School of Management, 135 Prospect Street, New Haven, Connecticut 06520)

Abstract

Chat rooms, recommendation sites, and customer review sections allow consumers to overcome geographic boundaries and to communicate based on mutual interests. However, marketers also have incentives to supply promotional chat or reviews in order to influence the consumers' evaluation of their products. Moreover, firms can disguise their promotion as consumer recommendations due to the anonymity afforded by online communities. We explore this new setting where advertising and word of mouth become perfect substitutes because they appear indistinguishable to the consumer. Specifically, we investigate here whether word of mouth remains credible and whether firms choose to devote more resources promoting their inferior or superior products. We develop a game theoretic model in which two products are differentiated in their value to the consumer. Unlike the firms, the consumers are uncertain about the products' quality. The consumers read messages online that help them decide on the identity of the superior product. We find a unique equilibrium where online word of mouth is persuasive despite the promotional chat activity by competing firms. In this equilibrium, firms spend more resources promoting inferior products, in striking contrast to existing advertising literature. In addition, we discuss consumer welfare implications and how other marketing strategies might interact with promotional chat.

Suggested Citation

  • Dina Mayzlin, 2006. "Promotional Chat on the Internet," Marketing Science, INFORMS, vol. 25(2), pages 155-163, 03-04.
  • Handle: RePEc:inm:ormksc:v:25:y:2006:i:2:p:155-163
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    File URL: http://dx.doi.org/10.1287/mksc.1050.0137
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. O. Loginova & A. Mantovani, 2015. "Information and Online Reviews," Working Papers wp996, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Edgardo Arturo Ayala Gaytán, 2009. "Social network externalities and price dispersion in online markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-28, November.
    3. Mangold, W. Glynn & Faulds, David J., 2009. "Social media: The new hybrid element of the promotion mix," Business Horizons, Elsevier, vol. 52(4), pages 357-365, July.
    4. Oksana Loginova & Andrea Mantovani, 2015. "Price Competition in the Presence of a Web Aggregator," Working Papers 1616, Department of Economics, University of Missouri, revised 17 Aug 2016.
    5. Sarigul, Sercan & Rui, Huaxia, 2014. "Nowcasting Obesity in the U.S. Using Google Search Volume Data," 2014 AAEA/EAAE/CAES Joint Symposium: Social Networks, Social Media and the Economics of Food, May 29-30, 2014, Montreal, Canada 166113, Agricultural and Applied Economics Association;Canadian Agricultural Economics Society;European Association of Agricultural Economists.
    6. Jianqing Chen & Hong Xu & Andrew B. Whinston, 2009. "Moderated Online Communities and User-Generated Content," Working Papers 09-11, NET Institute.
    7. Reuber, A. Rebecca & Fischer, Eileen, 2011. "International entrepreneurship in internet-enabled markets," Journal of Business Venturing, Elsevier, vol. 26(6), pages 660-679.
    8. Philipp Herrmann, 2014. "The impact of the variance of online consumer ratings on pricing and demand – An analytical model," Working Papers Dissertations 07, Paderborn University, Faculty of Business Administration and Economics.
    9. Bing Jing, 2011. "Seller honesty and product line pricing," Quantitative Marketing and Economics (QME), Springer, vol. 9(4), pages 403-427, December.
    10. Arbatskaya, Maria & Konishi, Hideo, 2016. "Consumer referrals," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 34-58.
    11. repec:eee:proeco:v:191:y:2017:i:c:p:97-112 is not listed on IDEAS
    12. Grunewald, Andreas & Kräkel, Matthias, 2017. "Fake News," IZA Discussion Papers 11207, Institute for the Study of Labor (IZA).
    13. Joshua S. Gans & Avi Goldfarb & Mara Lederman, 2017. "Exit, Tweets, and Loyalty," Working Papers 2017-009, Human Capital and Economic Opportunity Working Group.
    14. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    15. Richards, Timothy J. & Tiwari, Ashutosh, 2014. "Social Networks and Restaurant Choice," 2014 AAEA/EAAE/CAES Joint Symposium: Social Networks, Social Media and the Economics of Food, May 29-30, 2014, Montreal, Canada 166112, Agricultural and Applied Economics Association;Canadian Agricultural Economics Society;European Association of Agricultural Economists.
    16. Nagler, Matthew G. & Kronenberg, Fredi & Kennelly, Edward J. & Jiang, Bei & Ma, Chunhui, 2010. "The use of indicators for unobservable product qualities: inferences based on consumer sorting," MPRA Paper 28409, University Library of Munich, Germany.
    17. Dina Mayzlin & Yaniv Dover & Judith A. Chevalier, 2012. "Promotional Reviews: An Empirical Investigation of Online Review Manipulation," NBER Working Papers 18340, National Bureau of Economic Research, Inc.
    18. Weijia Dai & Ginger Z. Jin & Jungmin Lee & Michael Luca, 2012. "Optimal Aggregation of Consumer Ratings: An Application to Yelp.com," NBER Working Papers 18567, National Bureau of Economic Research, Inc.
    19. Koji Ishida & Lisa Slevitch & Katia Siamionava, 2016. "The Effects of Traditional and Electronic Word-of-Mouth on Destination Image: A Case of Vacation Tourists Visiting Branson, Missouri," Administrative Sciences, MDPI, Open Access Journal, vol. 6(4), pages 1-17, September.
    20. Rohit Aggarwal & Ram Gopal & Ramesh Sankaranarayanan, 2007. "Negative Blogs, Positive Outcomes: When should Firms Permit Employees to Blog Honestly?," Working Papers 07-32, NET Institute, revised Sep 2007.
    21. Yabing Jiang & Hong Guo, 2012. "Design of Consumer Review Systems and Product Pricing," Working Papers 12-10, NET Institute.
    22. Zhang, Tao & Li, Gang & Cheng, T.C.E. & Lai, Kin Keung, 2017. "Welfare economics of review information: Implications for the online selling platform owner," International Journal of Production Economics, Elsevier, vol. 184(C), pages 69-79.
    23. Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2013. "Platform or Wholesale? Different Implications for Retailers of Online Product," Working Papers 13-14, NET Institute.

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