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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
Mar 6, 2020

Do Social Media Trump Government Report Cards in Influencing Consumer Choice? Evidence from U.S. Nursing Homes


Social media have emerged as important channels to disseminate quality information to consumers in a variety of service settings. Their influence has recently spread to healthcare services, for which government report cards have long been established to disclose rigorous and credible quality information to the public. Given the presence of government report cards, do social media even matter in affecting consumer choice? If so, which quality information channel has a stronger effect? We seek to answer these questions in the context of U.S. nursing homes by studying consumer ratings from Yelp and government ratings from Nursing Home Compare, both of which adopt a five-star quality rating scale and are accessible on the Internet. We apply the method of difference-in-differences with continuous treatment intensity and instrumental variables to conduct our analysis. We find that higher Yelp ratings led to higher resident admissions on average. This effect was not uniformly distributed across residents with different payer sources: Admissions of lucrative residents, i.e., Medicare admissions, increased, whereas admissions of economically disadvantaged residents, i.e., Medicaid admissions, slightly decreased. Despite the limited number of consumer ratings per rated nursing home, surprisingly, Yelp ratings exerted a stronger effect on consumer choice than government ratings. We further show that this dominance of Yelp ratings over government ratings was stronger in markets with higher Yelp penetration or lower consumer education level. Although higher Yelp ratings were associated with increased net incomes and total margins, we find little evidence that nursing homes have made quality improvement in response to their Yelp ratings.
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