Abstract

Third-party reviews play an important role in many contexts in which tangible attributes are insufficient to enable consumers to evaluate products or services. In this paper, we examine the impact of professional and amateur reviews on the box office performance of movies. Using a simple diffusion model, we establish an econometrics framework to control for the interaction between the unobservable quality of movies and a word-of-mouth diffusion process and thereby estimate the residual impact of online amateur reviews on demand. The results indicate the significant influence of the valence measure (star ratings) of online reviews, but their volume measure (propensity to write reviews) is not significant once we control for quality. Furthermore, the analysis suggests that the variance measure (disagreement) of reviews does not play a significant role in the early weeks after a movie opening. The estimated influence of the valence measure implies that a one-point increase in the valence can be associated with a 4–10% increase in box office revenues.

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