The Supply and Demand Effects of Review Platforms

Review platforms such as Yelp and TripAdvisor aggregate crowd-sourced information about users' experiences with products and services. We analyze the impact of review platforms on the hotel industry using a panel of hotel prices, sales and reviews from five US states over a 10-year period from 2005-2014. We show that a hotel's demand is positively correlated with their average rating across TripAdvisor, Expedia and Hotels.com. Such correlations have grown over our sample period from a statistical zero in 2005 to a substantial level in 2014: a hotel rated one star higher on all the platforms on average has 27.8% higher demand. By contrast, an increase in average ratings has a negligible effect on hotels' pricing schedules (i.e. supply). A natural experiment in our data that caused abrupt changes in the ratings of some hotels but not others suggests that these associations are causal. Building on this causal interpretation, we estimate heterogeneous treatment effects: independent hotels stand to gain more from online reputation than chains, as do hotels that practice revenue management.