We model the strategic effects of social media investments that are both awareness enhancing and information revealing when firms also face quality revelation via user-generated discussions that over-sample extreme perceptions (the"tails"). We find a Pareto-dominant partial-pooling equilibrium under which mid-tier brands make large corporate social media investments while high and low quality firms pool at lower investment levels. Our results explain why the empirically observed lower social presence of high-quality brands like Apple (compared to mid-tier competitors) may be strategically sensible, and provide a framework for a more informed social media strategy.
Session 4B, paper 1