Good rankings are bad - Why reliable rankings can hurt consumers

Georg Kirchsteiger and Laurent Bouton

No 8702, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Ranking have become increasingly popular on markets for study programs, restaurants, wines, cars, etc. This paper analyses the welfare implication of such rankings. Consumers have to make a choice between two goods of unknown quality with exogenous presence or absence of an informative ranking. We show that existence of the ranking might make all consumers worse off. The existence of a ranking changes the demand structure of consumers. With rigid prices and rationing, the change can be detrimental to consumers due to its effect on rationing. Furthermore, this change in demand can also be detrimental due to consumption externalities. Finally, with perfectly flexible prices the ranking might increase the market power of firms and hence lead to losses for all consumers.

Keywords: Consumer welfare; Externalities; market power; Rankings; Rationing (search for similar items in EconPapers)
JEL-codes: D1 D4 D6 D8 L1 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-mic, nep-mkt and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Good Rankings Are Bad: Why Reliable Rankings Can Hurt Consumers (2015)
Working Paper: Good rankings are bad - Why reliable rankings can hurt consumers (2011)
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