Online Reputation Mechanisms and the Decreasing Value of Chain Affliation

Hollenbeck, Brett (2018): Online Reputation Mechanisms and the Decreasing Value of Chain Affliation. Published in: Journal of Marketing Research , Vol. 55, No. 5 (October 2018): pp. 636-654.

Abstract

This paper investigates the value of branding and how it is changing in response to a large increase in consumer information provided by online reputation mechanisms. As an application of umbrella branding, theory suggests much of the value to firms of chain affiliation results from asymmetric information between buyers and sellers. As more information becomes available, consumers should rely less on brand names as quality signals and the ability for firms to extend reputations across heterogenous outlets should decrease. To examine this empirically, this paper combines a large, 15 year panel of hotel revenues with millions of online reviews from multiple platforms and performs a machine learning analysis of review text to recover latent, time-varying dimensions of firm quality. I find that branded, or chain-affiliated, hotels earn substantially higher revenues than equivalent independent hotels, but that this premium has declined by over 50% from 2000 to 2015. I find that this can be largely attributed to an increase in online reputation mechanisms, and that this affect is largest for low quality and small market firms. Numerous measures of the information content of online reviews show that as information has increased, independent hotel revenue grows substantially more than chain hotel revenue. Finally, the correlation between firm revenue and brand-wide reputation is decreasing and the correlation with individual hotel reputation is replacing it.

• Item Type: MPRA Paper
• Language: English
• Keywords: Online Reviews, Branding, Text Analysis, Franchising
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality ; Standardization and Compatibility; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure

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