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When Do Consumers Talk?

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The propensity of consumers to engage in word-of-mouth (WOM) differs after good versus bad experiences, which can result in positive or negative selection of user-generated reviews. We show how the dispersion of consumer beliefs about quality (brand strength), informativeness of good and bad experiences, and price can affect selection of WOM in equilibrium. WOM is costly: Early adopters talk only if they can affect the receiver's purchase. Under homogeneous beliefs, only negative WOM can arise. Under heterogeneous beliefs, the type of WOM depends on the informativeness of the experiences. We use data from Yelp.com to validate our predictions.

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  • Ishita Chakraborty & Joyee Deb & Aniko Oery, 2020. "When Do Consumers Talk?," Cowles Foundation Discussion Papers 2254, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2254
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    Keywords

    Costly communication; Recommendation engines; Review platforms; Word of mouth;
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