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Market-Based Solutions to Vital Economic Issues
Research
Aug 1, 2018

Agglomeration As a Driver Of the Volume Of Electronic Word Of Mouth In the Restaurant Industry

Abstract

While previous research has investigated various drivers of electronic word of mouth (eWOM), the firm’s offline competitive environment has not been considered. The authors explore this new horizon and examine the different effects of firms’ geographic concentration, or agglomeration, on the volume of eWOM received. They distinguish three types of agglomeration—density agglomeration (number of firms in the industry in an area), product agglomeration (overlap in product types offered by the firms in the area), and temporal agglomeration (overlap in moment of consumption). The authors develop hypotheses pertaining to the main effects of the three agglomeration types on eWOM volume, which take the form of an inverted U-shape, and the moderating effect of vertical quality differentiation. The authors test the hypotheses on the volume of eWOM generated per month on Yelp for restaurants in Phoenix, generated by 23,526 users for 2,885 restaurants over an eight-year period. The empirical results broadly support the hypotheses.


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