Spreading the Online Word-of-Mouth - A Study on the Impact of Feedback in the Online Hotel Reservation Industry

Abstract: In this paper we empirically analyse if feedback systems at online hotel booking websites affect the behaviour of partner hotels by providing them with an incentive to invest in better quality to please their customers. This is done by creating a model to forecast the expected behaviour of partner hotels and thereafter performing a number of statistical tests on review data from the online hotel reservation agency Booking.com to assess if the predicted behaviour can be observed in reality. What we expect to find is a significant difference between new and old partner hotels with respect to their level as well as variance of reputation. Our results cannot verify the stated hypothesis at a significance level of five percent. However, the coefficients derived exhibit the expected signs and, most likely, the failure stems from inadequate validity of data and biased feedback. The assumption of feedback provision after every transaction is relatively doubtful and moreover, we find that location, price, and the number of stars affect hotel reputation, suggesting irrational rating behaviour. To achieve the results proposed by economic theory the feedback system has to be redesigned to guarantee unbiased feedback provided by all customers. To achieve a win-win situation for hotels and consumers there is moreover a crucial need for further interdisciplinary research in the area, conducted jointly by economists, data scientists, and behavioural psychologists.