Ratings and Reciprocity

Johannes Johnen and Robin Ng
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Robin Ng: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2023006, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Evidence suggests online ratings and reviews are motivated by reciprocity. We incorporate a standard model of reciprocity into a model of ratings to capture 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’ reciprocal behaviour and obtain a good rating and larger profits in the future. Because also low-quality firms harvest ratings, reciprocity makes ratings less-informative about quality. Based on this mechanism, (i) we argue that reciprocity-based ratings cause 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. We show that even as ratings become less-informative, consumers can benefit from lower prices. 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 thereby undermines the informativeness of ratings and harms consumers.

Keywords: Reciprocity; Ratings and Reviews; Digital Economy; Reputation (search for similar items in EconPapers)
JEL-codes: D21 D83 D90 L10 (search for similar items in EconPapers)
Pages: 93
Date: 2023-02-09
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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