UCL School of Management is delighted to welcome Susan Lu, Purdue University, to host a research seminar discussing ‘How Does Multichannel Quality Information Affect Consumer Choice of Services? Social Media vs. Government Report Cards’
Social media has emerged as an important channel to disseminate quality information to consumers in a variety of service settings, ranging from hotels to restaurants to home repairs. Its presence has recently spread to heathcare services, where government report cards have long been established to disclose quality information to the public. Although the effects of social media and government report cards on consumer choice have been previously studied, they are investigated in separate settings and little work exists to study how they interact with each other in influencing consumer choice. We seek to address this question in the context of the U.S. nursing home industry by quantifying the joint effect of online consumer ratings from Yelp and government ratings from the Centers for Medicare and Medicaid Services. Both quality rating systems adopt a five-star rating scale, making them comparable to each other from consumer’s perspective. We apply the difference-in-differences method with instrumental variables to estimate the effects of Yelp and government ratings on nursing home’s resident admissions. We find that Yelp ratings may contradict government ratings. Nevertheless, higher Yelp ratings led to higher resident admissions on average. This effect was not uniformly distributed across consumers with different payment sources: Admissions of lucrative consumers, i.e., Medicare-covered residents, increased, whereas admissions of economically disadvantaged consumers, i.e., Medicaid-covered residents, decreased. Compared to government ratings, Yelp ratings exerted a stronger effect on consumer choice. Specifically, an additional star in the Yelp rating would on average increase a nursing home’s Medicare admissions by 2.0% more than an additional star in the government rating. To explain this result, we propose two mechanisms and provide supporting empirical evidence. First, Yelp’s brand recognition in other service settings helps to increase consumer awareness of its nursing home ratings, which we call the brand spillover effect. Second, the narrative presentation of consumer reviews on Yelp’s platform enables consumers to better process quality information, which we call the cognitive empathy effect. We also find that an additional star in the Yelp rating would on average increase a nursing home’s net income by $60,951 and total margin by 0.005. Although it appears to be financially beneficial, we find little evidence that nursing homes attempted to improve their Yelp ratings.