Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence

Tom Hamami

Journal of Industrial Economics, 2019, vol. 67, issue 2, 372-407

Abstract: I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when consumers are rational. This finding moreover suggests that product reviews may serve as a coordination mechanism for early adopters. In an empirical application to the video game journalism industry, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre‐existing game franchises. Additionally, I find variation in inflation across genres that would be inconsistent with common alternative theories of inflation, such as consumer naivete.

Date: 2019
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https://doi.org/10.1111/joie.12211

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Working Paper: Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence (2016)
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