Tripadvisor and Yelp- making businesses go big or fail

I’m an avid user of both Tripadvisor and Yelp and anytime I walk into a restaurant, book a hotel, or use a service I always check the reviews on one of these websites. Yet, when writing one of my most recent reviews I realized the influence that information cascades could have on these reviews.

Information cascades occur when individuals observe the actions of other individuals and perform the same action even though their signal and private information might suggest another course of action (ie be contradictory). Information cascades have been seen taking place on both of these websites, according to many different studies. Some studies do in fact put the prevalence of information cascades being prevalent in as high as 25% of all pages.

It is very easy to submit a TripAdvisor or Yelp review, individuals simply create a username in which they include some of their personal information such as their email and then they are able to contribute on the website. These websites have therefore been able to spread a great deal of up-to-date information to everyone wishing to go to a restaurant, stay at a hotel or use a service.

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The above graph shows the rapid growth of TripAdvisor between the year 2000 and 2013, and the growth has continued up until today.

 

The reviews on Yelp and TripAdvisor influence which restaurants/ café/ etc. that we end up selecting since we usually favor the ones with high reviews within or budget range and location. Studies have shown that they have an enormous influence on our perception of a restaurant. When an individual walks into a restaurant that has, for example, a one-star rating on TripAdvisor, their opinions of the restaurant is already biased. Thus, they will be looking for signs of all the issues that previous customers had complained about, and upon leaving the restaurant likely give it a one or two-star rating as well. An individual walking into a restaurant with a four-star rating on TripAdvisor has a much higher regard for the restaurant and is thus less likely to give it a lower rating. Additionally, Tripadvisor and Yelp show viewers the usernames that submitted each review and it is thus even less likely that a person will go away from the norm since it will risk getting them to stick out and get negative feedback on their review.

Newly opened business are thus the ones that are at the highest risk of shutting down because of information cascades taking place on yelp or TripAdvisor. Consider a brand new restaurant that opens and gets as its first review a one-star, which is followed by another one-star. This means that the restaurant has already been defined in a category of the market, and due to the previous reviews new customers will approach it in a different way than what they would’ve done, had the reviews not been published. Several studies have shown that a boost in one-star rating leads to revenues increasing between 5-10%.

The information cascades that take place have therefore made many newly opened restaurants fail. This has led to the rise of “fake” reviews to counteract the trend of bad reviews and move a restaurant/ cafè or other service provider up in its review level, and boost its revenue. Several cities have carried out great crackdowns to infiltrate the market of “fake” reviews since it is illegal. New York managed to do this by creating a fake yoghurt shop and asking various providers of “fake reviews” for help (Check the article at http://www.huffingtonpost.com/2013/09/23/fake-yelp-reviews_n_3976415.html). In fact, a study (Reviews, Reputation, and Revenue: The Case of Yelp.com by Michael Luca) showed that a restaurant receiving a 1-star review would have on average 10% more “fake reviews” during the period of the 1-star review that during the next period of time. Another interesting point that the study brought up was that when two restaurants offering the same type of food are located close to each other, there is a 3% increase in the amount of highly-negative and thus probably “fake reviews”.

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The image above shows an example of one of the many reviews that were removed from the TripAdvisor website after it was criticized for being “fake”

 

This blog post should have therefore discussed the way why information cascades can easily occur on review websites such as TripAdvisor and Yelp. While these websites have made it better for consumers as they have increased the availability of information allowing consumers to make more informed choices, they have also had negative consequences. Newly opened restaurants, cafés and other service providers have had their fate decided by the string of the first reviews which in many ways means that the consumer isn’t provided the best kind of information. These websites have also incentivized owners to perform illegal activities such as providing fake reviews to be able to stay in business, which is also a negative consequence. There very many studies that I looked through to learn more about information cascades on TripAdvisor and Yelp, and I’ve included them below.

 

Luca, Michael. Reviews, Reputation, and Revenue: The Case of Yelp.com. Working paper no. 12-016. September 2011.

http://www.telegraph.co.uk/travel/hotels/8050127/Tripadvisor-reviews-can-we-trust-them.html

http://www.huffingtonpost.com/2013/09/23/fake-yelp-reviews_n_3976415.html
http://fivethirtyeight.com/features/yelp-and-michelin-have-the-same-taste-in-new-york-restaurants/

http://snap.stanford.edu/class/cs224w-2011/proj/emmao_Finalwriteup_v1.pdf

 

 

 

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