Essays on participation dynamics and informational value of virtual communities

In recent years, virtual communities have become increasingly popular among online users and businesses. Public press has shown a strong interest in virtual communities and announced their informational value. The explosive growth of virtual communities has aroused tremendous interest among academic researchers as well. Academic researchers have noticed that participation dynamics of virtual communities among online users create valuable information that influences subsequent economic outcome. However, relatively little research has explored the underlying motives of passive and active participation in virtual communities. In particular, research explicating how the information created by user participation influences users’ economic decisions has not been investigated. To investigate user participation dynamics and the resulting informational value of virtual communities, I explore three major issues in my dissertation. First, I investigate the determinants of passive and active users of virtual communities using survey data from 502 online investors. The results indicate that social, psychological, and community factors influence two different behavioral intentions – the intention to share and the intention to seek. For instance, social factors such as reputation seeking increase the intention to share in virtual communities, whereas psychological factors such as perceived knowledge deteriorate the intention to seek. Second, I explore how an online investor processes information posted on virtual communities and its subsequent economic outcomes by conducting a field experiment. I find that psychological bias (e.g., confirmation bias) influences investors’ information processing behaviors, which ultimately leads to a low return of investment as compared to economic rationales. Following this line of exploration, I empirically examine the relative informational impact of virtual communities on users’ decisions and market performance in the context of electronic markets. Using customer review data from a well-known online retailer and from three third-party customer review websites, I find that consumers obtain product information from external information sources during the information search stage for high involvement products and are thus less influenced by retailer-hosted information. All in all, my dissertation contributes to the understanding of user participation dynamics and informational value of virtual communities by investigating users’ information processing behavior and the subsequent economic outcomes and performance.