Word-of-Mouth Communication and Demand for Products with Different Quality Levels

Bharat Bhole () and Bríd Hanna

Computational Economics, 2015, vol. 46, issue 4, 627-651

Abstract: We analyze a market with two product alternatives that differ in quality. Consumers choose between these products based on consumer reviews and their own experience. We examine how the market share of the superior product is affected by (i) the number of reviews obtained by consumers; and (ii) the type of information conveyed in these reviews. We find that when consumers randomly sample reviews from the entire population, an increase in the number of reviews can decrease the market share of the superior product. This, however, is not the case when consumers seek out reviews on each product. Further, we find that the market share of the superior product can be significantly lower when reviews convey subjective satisfaction compared to when they convey objective payoffs. This effect depends on the degree of heterogeneity in consumer expectations. Copyright Springer Science+Business Media New York 2015

Keywords: Word-of-mouth communication; Product quality; Product reviews; Bounded rationality; Computational approach; Agent-based modeling (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10614-014-9453-8

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