Ratings design and barriers to entry

Nikhil Vellodi ()
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Nikhil Vellodi: Paris School of Economics

Theoretical Economics, Forthcoming

Abstract: I study the impact of consumer reviews on the incentives for firms to participate in the market. I develop a framework in which firms produce goods of heterogeneous, unknown quality and face both entry and exit decisions. A rater uses consumer reviews to construct firm-specific ratings that are informative of quality and thus shape consumer demand. The main insight of the paper is that suppressing the reviews of highly-rated firms stimulates entry and improves consumer welfare.

Keywords: Product reviews; information design; firm dynamics; social learning; ergodic analysis; directed search (search for similar items in EconPapers)
JEL-codes: D21 D82 D83 L11 L15 L86 (search for similar items in EconPapers)
Date: 2026-03-05
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