Template-Type: ReDIF-Paper 1.0
Title: Harvesting Ratings
Author-Name: Johannes Johnen
Author-Email:
Author-Name: Robin Ng
Author-Email: 
Classification-JEL: D21, D83, L10
Keywords: Rating and reviews, digital economy, reputation

Abstract: Evidence suggests lower prices lead to better ratings, but better ratings induce firms to
charge higher prices in the future. We model that consumers are only willing to make
the effort to rate a seller if this seller provides a sufficient value-for-money. Using this
model, we explore how firms use prices to impact their own ratings. We show that firms
harvest ratings: they offer lower prices in early periods to trigger consumers to leave a
good rating in order to earn larger profits in the future. Because especially low-quality
firms harvest ratings, harvesting makes ratings less-informative about quality. Based
on this mechanism, (i) we argue that rating harvesting causes rating inflation; (ii)
we show that a marketplace that facilitates ratings (e.g. through reminders, one-click
ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace
that screens the quality of sellers makes ratings less-informative if the screening is
insufficient. Counter to the conventional wisdom that consumers benefit from ratings
via the information they transmit, we show that consumers prefer somewhat, but never
fully informative ratings. Nonetheless consumers prefer more-informative ratings than
average sellers. We apply these results to characterise when a two-sided platform wants
to facilitate ratings, and argue that efforts of major platforms to facilitate ratings did
not just lead to less-informative ratings, but also shifted surplus from consumers to
sellers.


Note: 
Length: 51
Creation-Date: 2024-02
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp509
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_509