Abstract
Managerial responses to online customer reviews not only affect customers who receive the responses but also influence the behavior of subsequent customers who observe the responses. This externality arises because of the public nature of managerial responses. However, prior studies on managerial responses have been mainly limited to the offline setting where such externality rarely arises. In this exploratory study, we propose possible causes of the externality and empirically assess its magnitude. We leverage a natural experiment provided by two online travel agencies. Both agents allow customers to post reviews on hotels, but only one of the travel agents allows hotel management to post managerial responses. Using a difference-in-difference approach, we find that managerial responses have a significant and positive impact on the valence and volume of subsequent customer reviews. Average review rating increases by 15% and average review volume increases by 48% after the provision of managerial responses. We also find evidence that the increase in review volume can be partially attributed to increases in hotel sales. Our result highlights the importance of managing and responding to online customer reviews.
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