Good Rankings Are Bad: Why Reliable Rankings Can Hurt Consumers

Laurent Bouton and Georg Kirchsteiger

No 21083, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Rankings have become increasingly popular on various markets, e.g. the market for study programs. We analyze their welfare implications. Consumers have to choose between two goods of unknown quality with exogenous presence or absence of an unbiased informative ranking. The existence of the ranking might affect the welfare of all consumers negatively. With rigid prices, the ranking induced change in demand can be detrimental to all consumers in markets featuring rationing or consumption externalities. With perfectly flexible prices, the ranking might increase firms' market power, and hence lead to losses for all consumers even in the absence of rationing and consumption externalities.

JEL-codes: D8 L15 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Note: IO
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Related works:
Working Paper: Good rankings are bad - Why reliable rankings can hurt consumers (2011)
Working Paper: Good rankings are bad - Why reliable rankings can hurt consumers (2011)
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