Abstract

We examine the effect of online consumer reviews on the sales of video games. An inherent problem in measuring the influence of reviews on demand is that products receiving good reviews tend to be of high quality, and it is difficult to determine whether the review or the quality is responsible for the high demand. To circumvent this problem, we consider video games that are developed for both PlayStation 2 and Xbox and take a differences-in-differences approach to a structural model of game demand. Our results indicate that online consumer reviews have a significant influence on the sales of the video games. On average, one point increase in the average rating is associated with 4% increase in game sales. Negative ratings have a larger impact than positive ratings. In addition, we find that online reviews are more influential for less popular games. These results suggest the importance of managing online word of mouth for firms, especially for their less popular products.

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