The Effects of Online Review Ratings

Abstract

Online reviews have gained importance for consumers when shopping for experience goods. This dissertation documents the impact of Tripadvisor.com reviews on the hotel industry. In the first chapter, I investigate the causal impact of Tripadvisor review ratings on hotel performance via a regression discontinuity design. The results indicate that a 1-point increase in review rating leads to a 1.6% increase in revenue, a 1% increase in bookings, and a 0.4% to 0.6% increase in prices. Furthermore, the impact on bookings has increased over time. In the second chapter, I evaluate the welfare impact of Tripadvisor review ratings in providing information about quality. I develop a structural model of hotel demand and supply that takes price endogeneity and capacity constraints into consideration. Counterfactual experiments reveal that the removal of Tripadvisor from the status quo results in per-capita consumer surplus loss ranging from $0 to $5.8, with a more significant decrease in consumer surplus when prior knowledge about quality is less accurate. Hotels with higher quality than expected absent reviews benefit from review ratings, while the opposite is true for others. In the third chapter, I analyze the relative influence of Tripadvisor ratings on chain-affiliated and independent hotels and evaluate the value of Tripadvisor ratings compared to chain brands using the methodology developed in previous chapters. I find there is no significant difference in the effect of rating rounding on occupancy rates for chain-affiliated hotels versus independent hotels. Counterfactual experiment results suggest that despite chain brands providing value to consumers, Tripadvisor ratings provide additional value of about $0 to $4 per capita. In scenarios where Tripadvisor was not present, Chain-affiliated hotels benefit from brand affiliation while independent hotels are harmed.