Description:
In online social networks, social information, i.e., content generated and shared by users (e.g., past purchases), can be a substitute for sponsored advertising, which constitutes the network’s main source of revenue. When will social information be let to spread freely over the platform? We show that the answer depends on consumers’ effective response to advertising, which is determined by: (i) how many times customers search different products, and (ii) how persuadable they are to sample and try the advertised goods. When the effective response to advertising is greater for ‘late movers’, social information becomes a complement of advertising to rise product awareness, and there is full social information disclosure. Otherwise, social information is seen as a substitute or rival of paid ad, and it is suppressed, reducing consumers’ probability of buying the high-quality good, increasing their search costs, and diminishing consequently social welfare