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‘The Equalizer’: Measuring and Explaining the Impact of Online Communities on Consumer Markets

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Abstract

Our objective is to examine how online communities affect the functioning of markets for durable goods with particular emphasis on markets that are both fragmented and diverse. Our thesis is that online communities have the potential to make relatively inefficient fragmented markets more efficient. This effect will manifest itself through the observed pricing for the goods in both standard commercial settings and in internet exchange institutions. A secondary effect of the online communities should be to amplify the impact of quality (as perceived by the user) on market transactions. We conclude with an analysis of the foundations of credibility for user-generated content within online communities.

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Notes

  1. This study demonstrates that user book reviews collected on book-selling websites affect sales of books on each site.

  2. In our study, we analyze harmony-central.com, or ‘HC’, an online agora for amateur and professional musicians. The HC website also provides a comprehensive source of user ratings for musical equipment.

  3. http://reverendguitars.com/forum/forum_posts.asp?TID=3069&PN=1.

  4. See NAMM, ‘2006 Music USA, NAMM Global Report'.

  5. Anon. ‘The Top 200’. The Music Trades, August 2006. This publication indicates a larger market for instruments than does NAMM, the industry trade association. Both indicate a US market for all musical instruments and gear of over $7 bn.

  6. The original acronym stood for National Association of Music Merchandisers. This US organization has become increasingly international and no longer posts its original name anywhere on its website or publications.

  7. While China accounts for the largest share of guitar manufacturing, the quality of Korean and Japanese-built products is generally considered by consumers to be superior.

  8. See footnote 4.

  9. See http://reviews.harmony-central.com/. In the spring of 2010, following this study, HC revised its user review database and rating systems; however, reviews and ratings referred to in this article are still catalogued at the cited URL under the heading ‘Harmony Central 1.0 Legacy Reviews’.

  10. We have identified similar rating systems in other markets, such as used cars and video cameras. The HC database is particularly interesting from a research standpoint because it has no real competition in terms of authority and comprehensiveness, and it is largely independent of manufacturer influence.

  11. This review and Ray's original can be viewed at http://reviews.harmony-central.com/reviews/Guitar/product/Reverend/SlingShot+Custom/50/1.

  12. HC states these rules on its review filing form at http://reviews.harmony-central.com/user_reviews/form/Guitar/23222.

  13. For this reason, country of origin cannot be used as an independent variable in our empirical analysis since it cannot be distinguished from an Ibanez brand effect.

  14. The column on eBay containing current bid shows the selling price once the auction is completed. If the auction does not result in a sale, then the column is blank (indicating no sale).

  15. The features ‘country of origin’ and ‘controls’ are not included as they are perfectly correlated with the brands Ibanez and Reverend, respectively.

  16. The upper critical value for the F-statistic found in the Engineering Statistics Handbook for the comparison is F0.05(4.97)=2.485.

  17. Auction information from eBay has been used in a number of studies to understand the distribution of prices and potential bidders (see Adams (2007) for example). Our approach, however, entails treating the eBay winning bid as a dependent variable.

  18. When brand effects are included in the model, the adjusted R-square is lower than for the model with HCS alone; moreover, all but one of the coefficients is insignificant.

  19. Hunter (2000).

  20. See http://www.amazon.com/Sony-DCR-SR47-Handycam%C2%AE-Camcorder-Silver/product-reviews/B001P3O3OK/ref=dp_top_cm_cr_acr_txt?ie=UTF8&showViewpoints=1,accessed 2 January, 2010.

  21. For an insightful interview with a Lego employee who is a member of this community, see http://redcouch.typepad.com/weblog/2008/06/1-what-years-we.html.

  22. ibid.

  23. The incident is recounted by Dan Keeney, ‘Johnson & Johnson Redefines Crisis Response Again’, at http://www.dpkpr.com/en/art/383/, accessed 28 April, 2010.

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Appendix A

Appendix A

See Table A1

Table A1 Representative selection of data on brand models within the sample

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Hunter, M., Soberman, D. ‘The Equalizer’: Measuring and Explaining the Impact of Online Communities on Consumer Markets. Corp Reputation Rev 13, 225–247 (2010). https://doi.org/10.1057/crr.2010.25

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