Alone, Together. Product Discovery Through Consumer Ratings

Tommaso Bondi ()
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Tommaso Bondi: NYU Stern School of Business, 44 West 4th Street, New York, NY 10012.

No 19-09, Working Papers from NET Institute

Abstract: Consumer ratings have become a prevalent driver of choice. I develop a model of social learning in which ratings can inform consumers about both product quality and their idiosyncratic taste for them. Depending on consumers’ prior knowledge, I show that ratings relatively advantage lower quality and more polarizing products. The reason lies in the stronger positive consumer self-selection these products generate: to buy them despite their deficiencies, their buyers must have a strong taste for them. Relatedly, consumer ratings should not be used to infer which products are polarizing: what is polarizing ex-ante needs not be so among its buyers. I test these predictions using Goodreads book ratings data, and find strong evidence for them. Goodreads appears to serve mostly a matching purpose: tracking the behavior of its users over time reveals an increasing degree of specialization as they gather experience on the platform: they rate books with a lower average and number of ratings, while focusing on fewer genres. Thus, they become less similar to their average peer. Taken together, the findings suggest that consumer ratings contribute to both the long tail and, relatedly, consumption segregation. For managers, this illustrates, counterintuitively, the reputational benefits of polarizing products, particularly early in a firm’s lifecycle, but only when paired with the ability to match with the right consumers.

Keywords: consumer ratings; social learning; polarization; cultural markets. (search for similar items in EconPapers)
JEL-codes: L13 L43 L96 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2019-09
New Economics Papers: this item is included in nep-mkt and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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