Unboxing the Causal Effect of Ratings on Product Demand: Evidence from Wayfair.com

Evan Magnusson

Journal of Industrial Economics, 2022, vol. 70, issue 3, 525-564

Abstract: Using a regression discontinuity design, I estimate the causal effect of increasing product ratings by half a star on Wayfair.com to be a 5% increase in product demand. Utilizing a transaction‐level dataset, I show that this is driven by an increase in sales, not a price change. This effect is stronger for products with more reviews or sold by lesser‐known brands (and nonexistent for those with no reviews or from popular brands). Also, products with the highest ratings see the largest benefit from having a marginally higher rating. I fail to find reviews affecting repeat purchasers differently than first‐time customers.

Date: 2022
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