Promotional Chat on the Internet

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

Marketing Science, 2006, vol. 25, issue 2, 155-163

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.

Keywords: advertising; word-of-mouth; source credibility; Internet marketing (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (151)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:25:y:2006:i:2:p:155-163

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