nep-mkt New Economics Papers
on Marketing
Issue of 2021‒05‒24
two papers chosen by
Marco Novarese
Università del Piemonte Orientale

  1. Bias in expert product reviews By Ben Vollaard; Jan C. van Ours
  2. When Biased Ratings Benefit the Consumer - An Economic Analysis of Online Ratings in Markets with Variety-Seeking Consumers By Jürgen Neumann

  1. By: Ben Vollaard (Tilburg University); Jan C. van Ours (Erasmus University Rotterdam)
    Abstract: Hard evidence on bias in expert reviews and its consequences for ratings is rare. This holds particularly true for conflicts of interest that are thought to be common in non-blind product reviews but are not readily observable: ad hoc relationships between reviewers and producers. We present a textbook case of a long-running expert product review in the food service industry for which we happen to know the reviewer's conflict of interest: being affiliated to one particular producer. As is typical, only insiders were aware of the possible source of bias in the review. The review resembles other non-blind tests of product quality. We obtained detailed data to map the consequences of the conflict of interest. We find evidence of a sizable bias in the reviewers' ratings. Our findings suggest that reviewers' ad hoc relationships with producers, often dismissed as `coming with the job', can be very harmful.
    Date: 2021–05–17
  2. By: Jürgen Neumann (University of Paderborn)
    Abstract: For the sake of variety, consumers in many markets often choose to consume an unknown, potentially low-quality good over a known, high-quality one. Online ratings, despite their widely recognized importance for assessing the quality of unknown goods, have not yet been studied in the light of such variety-seeking behavior. In particular, it remains unclear how online ratings interact with variety-seeking in terms of market outcomes. This study proposes an analytical model to analyze this interaction, including pricing, profits, and consumer surplus. The main results of the model analysis suggest that for markets where consumers' tendency for variety-seeking is sufficiently strong, the following holds: (1) An increase in online ratings is more profitable for low-quality than for high-quality sellers, and (2) an increase in online ratings leads to an increase in consumer surplus even if ratings overestimate actual quality (i.e., are positively biased). These insights can help not only businesses operating in these markets with managing their online reputation and setting their prices, but also review system designers with de-biasing the ratings published on their system.
    Keywords: Online Ratings, Variety-Seeking, Analytical Modeling, Economics of IS
    JEL: M15 M31 O32 D43
    Date: 2021–05

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