Digitization and Pre-purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings

Imke Reimers and Joel Waldfogel

American Economic Review, 2021, vol. 111, issue 6, 1944-71

Abstract: Digitization has led to many new creative products, straining the capacity of professional critics and consumers. Yet, the digitization of retailing has also delivered new crowd-based sources of pre-purchase information. We compare the relative impacts of professional critics and crowd-based Amazon star ratings on consumer welfare in book publishing. Using various fixed effects and discontinuity-based empirical strategies, we estimate their causal impacts on sales. We use these causal estimates to calibrate a structural demand model. The aggregate effect of star ratings on consumer surplus is, in our baseline estimates, more than ten times the effect of traditional review outlets.

JEL-codes: D83 L15 L81 L82 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (32)

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Working Paper: Digitization and Pre-Purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings (2020)
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DOI: 10.1257/aer.20200153

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