| Abstract: |
Consumer ratings have become a prevalent driver of choice. I develop a model
of social learning in which ratings can inform consumers about both product
quality and their idiosyncratic taste for them. Depending on consumers’ prior
knowledge, I show that ratings relatively advantage lower quality and more
polarizing products. The reason lies in the stronger positive consumer
self-selection these products generate: to buy them despite their
deficiencies, their buyers must have a strong taste for them. Relatedly,
consumer ratings should not be used to infer which products are polarizing:
what is polarizing ex-ante needs not be so among its buyers. I test these
predictions using Goodreads book ratings data, and find strong evidence for
them. Goodreads appears to serve mostly a matching purpose: tracking the
behavior of its users over time reveals an increasing degree of specialization
as they gather experience on the platform: they rate books with a lower
average and number of ratings, while focusing on fewer genres. Thus, they
become less similar to their average peer. Taken together, the findings
suggest that consumer ratings contribute to both the long tail and, relatedly,
consumption segregation. For managers, this illustrates, counterintuitively,
the reputational benefits of polarizing products, particularly early in a
firm’s lifecycle, but only when paired with the ability to match with the
right consumers. |