The Welfare Impact of Consumer Reviews: A CaseStudy of the Hotel Industry

Gregory Lewis (Microsoft Research)

October 6, 2020, 14:00–15:00

Zoom Meeting

Economics of Platforms Seminar


Platforms such as Yelp and TripAdvisor aggregate crowd-sourced information aboutusers’ experiences with products and services. We analyze their impact on the hotelindustry using a panel of hotel prices, sales and reviews from five US states over a10-year period from 2005-2014. Both hotel demand and prices are positively correlatedwith their average ratings on TripAdvisor, Expedia and, and such correla-tions have grown over our sample period from a statistical zero in the base year to asubstantial level today: a hotel rated one star higher on all the platforms on averagehas 25% higher demand, and charges 9% more. A natural experiment in our data thatcaused abrupt changes in the ratings of some hotels but not others, suggests that theseassociations are causal. Building on this causal interpretation, we estimate a struc-tural model of supply and demand with partially informed consumers, finding that ina counterfactual world without any review information, aggregate consumers surplusfor potential travelers to these markets would fall by $124 million when prices are heldfixed. Allowing prices to adjust leads to welfare conclusions that are sensitive to themodeling assumptions.