Wisdom of crowds : the story behind customers’ online reviews and business success.

Abstract

Using the data from Yelp as of December 2017, this thesis examines the impacts of the online customers’ reviews on the performances of servicing businesses (raw effect) as well as their neighboring establishments (spillover effect), and on the review-writing behaviors of later customers (sentimental inducement effect). The findings on the raw effects dovetail the results of past studies, signifying a negative correlation between bad reviews and the traffic of businesses. However, the good reviews are only correlated with better performance in the short term but negatively associated with performance in the long term. More importantly, this thesis reveals the significant spatial spillover effects, showing that positive reviews of neighbors can make a business worse off in both short and long term while it will immediately suffer from neighbors’ negative reviews before being benefited from them in the long term. Finally, we discover that the negative (positive) reviews are likely to induce negative (positive) reviews in the future.