Unboxing the Causal Effect of Ratings on Product Demand: Evidence from Wayfair.Com

Abstract

I estimate the causal effect of increasing displayed product ratings by a half star on Wayfair.com to be a five percent increase in demand for products. This increase is driven by an increase in sales, not a change in price. Products with more ratings or that are sold by lesser known brands see a large effect of star ratings on orders, while products with fewer ratings or that are sold by well known brands see no effect of ratings on orders. Furthermore, I find the causal effect of ratings to be heterogeneous across products with different ratings — with the highest rated products seeing the largest benefit to having a marginally higher rating — but not across customers with varying degrees of experience purchasing products from the site. This heterogeneity in demand effects shows that the benefits of higher ratings are not equivalent across old and new products and sellers, indicating potential policy responses by e-commerce sites.