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

Tom Hamami

2016 Papers from Job Market Papers

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 fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, 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 that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.

JEL-codes: D21 D22 L14 L15 (search for similar items in EconPapers)
Date: 2016-11-29
New Economics Papers: this item is included in nep-com, nep-ind and nep-net
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Journal Article: Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence (2019)
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