Digitization has led to many new creative products, straining the capacity of professional critics and consumers. Yet, the digitization of retailing has also delivered new crowd-based sources of pre-purchase information. We compare the relative impacts of professional critics and crowd-based Amazon star ratings on consumer welfare in book publishing. Using various fixed effects and discontinuity-based empirical strategies, we estimate their causal impacts on sales. We use these causal estimates to calibrate a structural demand model. The aggregate effect of star ratings on consumer surplus is, in our baseline estimates, more than ten times the effect of traditional review outlets. (JEL D83, L15, L81, L82)
Coupons have been a mainstay of marketing for decades all over the world, but their short- and long-run effects on sales are still not understood fully. We develop a model of consumer demand to empirically study whether firms can indeed use coupons as a means to price discriminate by attracting new consumers without losing (cannibalizing) revenue from existing ones, and whether these new consumers return to the firm after the price promotion. In addition, we ask what types of businesses are most likely to benefit from such promotions. Following alcohol revenue for restaurants using e-coupons, we find that offering a coupon increases demand during the promotion, and to a lesser degree after the promotion, suggesting that coupons can be used to price discriminate, while an advertising effect is less obvious. While coupons increase profits on average, the effect on each firm’s profits depends on the firm’s characteristics. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2934 . This paper was accepted by Matthew Shum, marketing.
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