The dynamics of online word-of-mouth and product sales-An empirical investigation of the movie industry

Wenjing Duan, Bin Gu, Andrew B. Whinston

Research output: Contribution to journalArticle

626 Scopus citations

Abstract

There are growing interests in understanding how word-of-mouth (WOM) on the Internet is generated and how it influences consumers' purchase decisions at retail outlets. A unique aspect of the WOM effect is the presence of a positive feedback mechanism between WOM and retail sales. We characterize the process through a dynamic simultaneous equation system, in which we separate the effect of online WOM as both a precursor to and an outcome of retail sales. We apply our approach to the movie industry, showing that both a movie's box office revenue and WOM valence significantly influence WOM volume. WOM volume in turn leads to higher box office performance. This positive feedback mechanism highlights the importance of WOM in generating and sustaining retail revenue.

Original languageEnglish (US)
Pages (from-to)233-242
Number of pages10
JournalJournal of Retailing
Volume84
Issue number2
DOIs
StatePublished - Jun 1 2008

Keywords

  • E-commerce
  • Motion picture
  • Online user reviews
  • Simultaneous equations
  • Word-of-mouth

ASJC Scopus subject areas

  • Marketing

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