Misinformation and Mistrust: The Equilibrium Effects of Fake Reviews on Amazon.com

Ashvin Gandhi, Brett Hollenbeck and Zhijian Li

No 34161, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Fake product reviews—and the manipulation of reputation systems by sellers more broadly—are a widespread issue for two-sided platforms. We study two primary channels through which such manipulation can affect market outcomes: (i) creating misinformation about the reviewed product, and (ii) breeding mistrust in ratings system overall. To examine these in the Amazon.com marketplace, we measure misinformation by observing products purchasing fake reviews and measure mistrust by eliciting shoppers’ beliefs about the prevalence of fake reviews on Amazon through an incentivized survey experiment. We incorporate these into a structural model of demand in which consumers form beliefs about product quality based on observed reviews and perceptions about their trustworthiness. Counterfactual policy simulations indicate that fake reviews reduce consumer welfare, shift sales from honest to dishonest sellers, and ultimately harm the platform. Welfare losses arise primarily from misinformation that leads to worse purchases. While mistrust also leads to purchasing mistakes, the consumer harms of mistrust are largely offset by increased price competition under a weakened ratings system. Finally, we identify key limitations in platforms’ incentives to police manipulation and evaluate enforcement alternatives.

JEL-codes: L00 L1 L10 L11 L15 M3 M31 M38 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-com, nep-ind, nep-mkt and nep-reg
Note: IO LE
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