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How Does the Variance of Product Ratings Matter?

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  • Monic Sun

    ()
    (Graduate School of Business, Stanford University, Stanford, California 94305; and Marshall School of Business, University of Southern California, Los Angeles, California 90089)

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    Abstract

    This paper examines the informational role of product ratings. We build a theoretical model in which ratings can help consumers figure out how much they would enjoy the product. In our model, a high average rating indicates a high product quality, whereas a high variance of ratings is associated with a niche product, one that some consumers love and others hate. Based on its informational role, a higher variance would correspond to a higher subsequent demand if and only if the average rating is low. We find empirical evidence that is consistent with the theoretical predictions with book data from Amazon.com and BN.com. A higher standard deviation of ratings on Amazon improves a book's relative sales rank when the average rating is lower than 4.1 stars, which is true for 35% of all the books in our sample. This paper was accepted by Pradeep Chintagunta, marketing.

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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1458
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 58 (2012)
    Issue (Month): 4 (April)
    Pages: 696-707

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    Handle: RePEc:inm:ormnsc:v:58:y:2012:i:4:p:696-707

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    Related research

    Keywords: information transmission; product ratings; social media; user-generated content;

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    Cited by:
    1. Yabing Jiang & Hong Guo, 2012. "Design of Consumer Review Systems and Product Pricing," Working Papers 12-10, NET Institute.
    2. Sungha Jang & Ashutosh Prasad & Brian Ratchford, 2012. "How consumers use product reviews in the purchase decision process," Marketing Letters, Springer, vol. 23(3), pages 825-838, September.
    3. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    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.

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