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Ratings & Reciprocity

Author

Listed:
  • Johnen, Johannes
  • Ng, Robin

Abstract

We explore how firms use prices to impact their ratings. To do so, we follow extensive evidence that reciprocity motivates ratings and incorporate reciprocity into a model of ratings: consumers rate a seller if they get a sufficient value-for-money. We show firms harvest ratings: they offer lower prices in early periods to trigger consumers’ reciprocity and improve ratings and future profits. We show this mechanism implies that (i) reciprocity-based ratings cause rating inflation; (ii) facilitating ratings (through reminders, pay-to-rate...) leads to more- but less-informative ratings. Consumers benefit from lower prices despite less-informative ratings, and prefer more-informative ratings than average sellers.

Suggested Citation

  • Johnen, Johannes & Ng, Robin, 2023. "Ratings & Reciprocity," CEPR Discussion Papers 18021, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18021
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    More about this item

    Keywords

    Reciprocity; Ratings; Ratings inflation; Seller reputation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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