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Bad news turned good: reversal under censorship

Aleksei Smirnov and Egor Starkov

No 307, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.

Keywords: Censorship; dynamic games; disclosure; moderated learning (search for similar items in EconPapers)
JEL-codes: D82 D83 D90 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 2018-11
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