IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v67y2019i2p372-407.html
   My bibliography  Save this article

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

Author

Listed:
  • Tom Hamami

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 consumers are rational. This finding moreover suggests that product reviews may serve as a coordination mechanism for early adopters. In an empirical application to the video game journalism industry, 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 variation in inflation across genres that would be inconsistent with common alternative theories of inflation, such as consumer naivete.

Suggested Citation

  • Tom Hamami, 2019. "Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 372-407, June.
  • Handle: RePEc:bla:jindec:v:67:y:2019:i:2:p:372-407
    DOI: 10.1111/joie.12211
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12211
    Download Restriction: no

    File URL: https://libkey.io/10.1111/joie.12211?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Anita Elberse & Jehoshua Eliashberg, 2003. "Demand and Supply Dynamics for Sequentially Released Products in International Markets: The Case of Motion Pictures," Marketing Science, INFORMS, vol. 22(3), pages 329-354.
    2. Hilger, James & Rafert, Greg & Villas-Boas, Sofia Berto, 2007. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach," CUDARE Working Papers 6055, University of California, Berkeley, Department of Agricultural and Resource Economics.
    3. David A. Reinstein & Christopher M. Snyder, 2005. "The Influence Of Expert Reviews On Consumer Demand For Experience Goods: A Case Study Of Movie Critics," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 27-51, March.
    4. Dobrescu, Loretti I. & Luca, Michael & Motta, Alberto, 2013. "What makes a critic tick? Connected authors and the determinants of book reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 85-103.
    5. Navin Kartik, 2009. "Strategic Communication with Lying Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(4), pages 1359-1395.
    6. Monica D. Hernandez & Handan Vicdan, 2014. "Modeling word of mouth vs. media influence on videogame preorder decisions : A qualitative approach," Post-Print hal-02313150, HAL.
    7. Goh, Jeremy C & Ederington, Louis H, 1993. "Is a Bond Rating Downgrade Bad News, Good News, or No News for Stockholders?," Journal of Finance, American Finance Association, vol. 48(5), pages 2001-2008, December.
    8. Matthew Ellman & Fabrizio Germano, "undated". "What Do the Papers Sell?," Working Papers 149, Barcelona School of Economics.
    9. Richard Friberg & Erik Grönqvist, 2012. "Do Expert Reviews Affect the Demand for Wine?," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 193-211, January.
    10. Blasco, Andrea & Pin, Paolo & Sobbrio, Francesco, 2016. "Paying positive to go negative: Advertisers׳ competition and media reports," European Economic Review, Elsevier, vol. 83(C), pages 243-261.
    11. Dewenter Ralf & Heimeshoff Ulrich, 2014. "Media Bias and Advertising: Evidence from a German Car Magazine," Review of Economics, De Gruyter, vol. 65(1), pages 77-94, April.
    12. Ralf Dewenter & Ulrich Heimeshoff, 2015. "Do expert reviews really drive demand? Evidence from a German car magazine," Applied Economics Letters, Taylor & Francis Journals, vol. 22(14), pages 1150-1153, September.
    13. Camara, Fanny & Dupuis, Nicolas, 2014. "Structural Estimation of Expert Strategic Bias: The Case of Movie Reviewers," TSE Working Papers 14-534, Toulouse School of Economics (TSE).
    14. David Dranove & Ginger Zhe Jin, 2010. "Quality Disclosure and Certification: Theory and Practice," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 935-963, December.
    15. Hernandez, Monica D. & Handan, Vicdan, 2014. "Modeling word of mouth vs. media influence on videogame preorder decisions: A qualitative approach," Journal of Retailing and Consumer Services, Elsevier, vol. 21(3), pages 401-406.
    16. Matthew Ellman & Fabrizio Germano, 2009. "What do the Papers Sell? A Model of Advertising and Media Bias," Economic Journal, Royal Economic Society, vol. 119(537), pages 680-704, April.
    17. Reuter, Jonathan, 2009. "Does Advertising Bias Product Reviews? An Analysis of Wine Ratings," Journal of Wine Economics, Cambridge University Press, vol. 4(2), pages 125-151, January.
    18. Daniel Kaimann & Joe Cox, 2014. "The Signaling Effect of Critics: Do Professionals outweigh Word-of-Mouth? Evidence from the Video Game Industry," Working Papers Dissertations 10, Paderborn University, Faculty of Business Administration and Economics.
    19. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vollaard, Ben & van Ours, Jan C., 2022. "Bias in expert product reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 105-118.
    2. Tom Hamami & James Bailey, 2021. "Expert product reviews and conflict of interest," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 170-176, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tom Hamami & James Bailey, 2021. "Expert product reviews and conflict of interest," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 170-176, January.
    2. Stefano Dellavigna & Johannes Hermle, 2017. "Does Conflict of Interest Lead to Biased Coverage? Evidence from Movie Reviews," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1510-1550.
    3. Ralf Dewenter & Ulrich Heimeshoff, 2015. "Do expert reviews really drive demand? Evidence from a German car magazine," Applied Economics Letters, Taylor & Francis Journals, vol. 22(14), pages 1150-1153, September.
    4. Dieter Pennerstorfer & Christoph Weiss & Andreas Huber, 2019. "Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices," Economics working papers 2019-08, Department of Economics, Johannes Kepler University Linz, Austria.
    5. Vollaard, Ben & van Ours, Jan C., 2022. "Bias in expert product reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 105-118.
    6. Ralf Dewenter & Ulrich Heimeshoff & Tobias Thomas, 2016. "Media Coverage and Car Manufacturers' Sales," Economics Bulletin, AccessEcon, vol. 36(2), pages 976-982.
    7. Blasco, Andrea & Pin, Paolo & Sobbrio, Francesco, 2016. "Paying positive to go negative: Advertisers׳ competition and media reports," European Economic Review, Elsevier, vol. 83(C), pages 243-261.
    8. Blasco, Andrea & Sobbrio, Francesco, 2012. "Competition and commercial media bias," Telecommunications Policy, Elsevier, vol. 36(5), pages 434-447.
    9. Pannicke, Julia, 2015. "Media bias in women's magazines: Do advertisements influence editorial content?," Ilmenau Economics Discussion Papers 99, Ilmenau University of Technology, Institute of Economics.
    10. Daniela Rroshi & Michael Weichselbaumer, 2021. "What is in a price? Evidence on quality signaling for experience goods," Department of Economics Working Papers wuwp311, Vienna University of Economics and Business, Department of Economics.
    11. Ruenzi, Stefan & Focke, Florens & Niessen-Ruenzi, Alexandra, 2014. "A Friendly Turn: Advertising Bias in the News Media," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100497, Verein für Socialpolitik / German Economic Association.
    12. Villas-Boas, Sofia B, 2020. "Reduced Form Evidence on Belief Updating Under Asymmetric Information," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt08c456vk, Department of Agricultural & Resource Economics, UC Berkeley.
    13. Bonnet, Céline & Hilger, James & Villas-Boas, Sofia B., 2017. "Reduced Form Evidence on Belief Updating under Asymmetric Information - The Case of Wine Expert Opinions," TSE Working Papers 17-834, Toulouse School of Economics (TSE), revised May 2019.
    14. Engström, Per & Forsell, Eskil, 2018. "Demand effects of consumers’ stated and revealed preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 43-61.
    15. Germano, Fabrizio & Meier, Martin, 2013. "Concentration and self-censorship in commercial media," Journal of Public Economics, Elsevier, vol. 97(C), pages 117-130.
    16. Michela Ponzo & Vincenzo Scoppa, 2015. "Experts’ awards and economic success: evidence from an Italian literary prize," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(4), pages 341-367, November.
    17. Dewenter, Ralf & Heimeshoff, Ulrich, 2015. "More ads more revs: A note on media bias in review likelihood," Economic Modelling, Elsevier, vol. 44(C), pages 156-161.
    18. Beattie, Graham, 2020. "Advertising and media capture: The case of climate change," Journal of Public Economics, Elsevier, vol. 188(C).
    19. Francesco Sobbrio, 2012. "A Citizen-Editors Model of News Media," RSCAS Working Papers 2012/61, European University Institute.
    20. Ascensión Andina Díaz, 2011. "Mass Media in Economics: Origins and Subsequent Contributions," Working Papers 2011-02, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.

    More about this item

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jindec:v:67:y:2019:i:2:p:372-407. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.