Strategic Management of Social Information

Social information—organically generated content about past purchases—can strongly influence consumer choices in online platforms. Yet such information may compete with paid advertising, the main revenue source for social networks. We present a model in which two competing firms advertise on a social network while consumers decide which products to sample. Some consumers observe social information about earlier purchases. We characterize when the platform allows social information to flow freely and when it suppresses it. The key factor is consumers’ effective response to advertising, i.e., how readily they sample an advertised product and how many times they search before buying. If social information enhances advertising’s impact, the platform diffuses it; otherwise, it restricts it. We show that suppressing social information reduces both consumer welfare and the likelihood of discovering higher‐quality products. Our findings remain robust if consumers can opt out of the market entirely when first‐search costs are high.