Good rankings are bad - Why reliable rankings can hurt consumers
AbstractRanking have become increasingly popular on markets for study programs, restau- rants, wines, cars, etc. This paper analyses the welfare implication of such rankings. Consumers have to make a choice between two goods of unknown quality with exogenous presence or absence of an informative ranking. We show that existence of the ranking might make all consumers worse o¤. The existence of a ranking changes the demand structure of consumers. With rigid prices and rationing, the change can be detrimental to consumers due to its e¤ect on rationing. Furthermore, this change in demand can also be detrimental due to consumption externalities. Finally, with perfectly ?exible prices the ranking might increase the market power of ?rms and hence lead to losses for all consumers.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2011-002.
Length: 26 pages
Date of creation: Jan 2011
Date of revision:
Other versions of this item:
- Bouton, Laurent & Kirchsteiger, Georg, 2011. "Good rankings are bad - Why reliable rankings can hurt consumers," CEPR Discussion Papers 8702, C.E.P.R. Discussion Papers.
- D1 - Microeconomics - - Household Behavior
- D4 - Microeconomics - - Market Structure and Pricing
- D6 - Microeconomics - - Welfare Economics
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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