The Superiority of Tough Reviewers in a Model of Simultaneous Sales
AbstractThis paper considers the impact of reviewers on the sale of a product of unknown quality. Sales occur simultaneously after an initial review by an unbiased, pessimistic or optimistic reviewer and we examine the impact on sales in each case. We find that counter-intuitively a pessimistic reviewer is best for the firm's profits regardless of the quality of the product. An endorsement by such a pessimist provides an excellent signal of the product's quality, while consumers expect the reviewer to fail to endorse, so receiving no endorsement will not impact too heavily on the firm's expected profits. This asymmetric impact provides a strong explanation for the stylized fact that reviewers are often viewed as being very critical.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0335.
Date of creation: Jul 2003
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private information; reviewers; bias; simultaneous sales; marketing;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-07-29 (All new papers)
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"Sequential decisions with tests,"
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- Emmanuel Farhi & Josh Lerner & Jean Tirole, 2008. "Fear of Rejection? Tiered Certification and Transparency," NBER Working Papers 14457, National Bureau of Economic Research, Inc.
- Josh Lerner & Jean Tirole, 2006. "A Model of Forum Shopping," American Economic Review, American Economic Association, vol. 96(4), pages 1091-1113, September.
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