Popularity Brings Better Sales or Vice Versa: Evidence from Instagram and OpenTable

Abstract

With the popularity of user-generated content (UGC), an increasing number of studies have investigated its impact on business performance. However, prior studies were limited to a single platform and showed the effects of UGC of a platform, for example, customer textual comments or customer numeral ratings, on sales/reservation of the same platform. In practice, users often refer to a UGC, for example, Instagram, and purchase it on other platforms. To incorporate the spillover effect, we considered the restaurant industry because it has active participation across various channels. Using topic modelling, we first identified from Instagram four topics of users’ interest regarding a restaurant, such as location, nightlife, food and celebration. From fixed effects models’ estimation, we found that (a) recommendation and mention of Instagram have positive effects, and (b) comments of location and food also have positive significant fixed effects, but (c) the impact of Instagram volume is curvilinear and positive significant effect the sales. Since the curvilinear effects may come from reverse causality, that is, higher reservation, might bring more customers and comments on social networking service (SNS) (echo verse effect in our paper). Therefore, we further analysed two-way Granger causality and panel vector autoregression to identify the endogeneity, and the results showed the existing Granger causality loop between OpenTable review and Instagram post volumes.