Measuring the Demand Effects of Formal and Informal Communication : Evidence from Online Markets for Illicit Drugs
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I present evidence that communication between marketplace participants is an important influence on market demand. I find that consumer demand is approximately equally influenced by communication on both formal and informal networks- namely, product reviews and community forums. In addition, I find empirical evidence of a vendor's ability to commit to disclosure dampening the effect of communication on demand. I also find that product demand is more responsive to average customer sentiment as the number of messages grows, as may be expected in a Bayesian updating framework.
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