Online Social Interactions: A Natural Experiment on Word of Mouth versus Observational Learning

Abstract

Consumers’ purchase decisions can be influenced by others’ opinions, or word of mouth (WOM), and/or others’ actions, or observational learning (OL). Although information technologies are creating increasing opportunities for firms to facilitate and manage these two types of social interaction, to date, researchers have encountered difficulty in disentangling their competing effects and have provided limited insights into how these two social influences might differ from and interact with each other. Using a unique natural experimental setting resulting from information policy shifts at the online seller Amazon.com , the authors design three longitudinal, quasi-experimental field studies to examine three issues regarding the two types of social interaction: (1) their differential impact on product sales, (2) their lifetime effects, and (3) their interaction effects. An intriguing finding is that while negative WOM is more influential than positive WOM, positive OL information significantly increases sales, but negative OL information has no effect. This suggests that reporting consumer purchase statistics can help mass-market products without hurting niche products. The results also reveal that the sales impact of OL increases with WOM volume.