Spillover Effects of Online Reviews : Evidence from the Hotel Industry

Do online consumer reviews have spillover effects on the sales of competitors? We study this question using a natural experiment where a major hotel group introduced its own review system to all the hotels within its portfolio. Using a modified Synthetic Control Method, we analyze the monthly financial performance data of reviewed and competing hotels before and after the review system was introduced. We find that the review system has significant economic impacts on both reviewed and competing hotels, and that the effects are highly heterogeneous. Surprisingly, the correlation between the economic impact on reviewed and competing hotels is significantly positive: If the occupancy rate of a reviewed hotel increases by 1%, its competitors’ occupancy rate increases by 0.39%. The positive correlation can be explained by the information spillover. Under this mechanism, consumers update their beliefs about competing hotels based on the reviews for reviewed hotels. We explore alternative explanations, but none can fully explain the positive correlation. Our results suggest that, besides monitoring their own reviews, managers should also monitor competing products’ reviews because of information spillover from the competitors’ reviews