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Good rankings are bad - Why reliable rankings can hurt consumers

Author

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  • Kirchsteiger, Georg
  • Bouton, Laurent

Abstract

Ranking have become increasingly popular on markets for study programs, restaurants, 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 off. 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 effect on rationing. Furthermore, this change in demand can also be detrimental due to consumption externalities. Finally, with perfectly flexible prices the ranking might increase the market power of firms and hence lead to losses for all consumers.

Suggested Citation

  • Kirchsteiger, Georg & Bouton, Laurent, 2011. "Good rankings are bad - Why reliable rankings can hurt consumers," CEPR Discussion Papers 8702, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8702
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    1. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2011. "An updated ranking of academic journals in economics," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1525-1538, November.
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    8. Glazer, Jacob & McGuire, Thomas G. & Cao, Zhun & Zaslavsky, Alan, 2008. "Using global ratings of health plans to improve the quality of health care," Journal of Health Economics, Elsevier, vol. 27(5), pages 1182-1195, September.
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    11. Alan T. Sorensen, 2007. "Bestseller Lists And Product Variety," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 715-738, December.
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    13. Michael Luca & Jonathan Smith, 2013. "Salience in Quality Disclosure: Evidence from the U.S. News College Rankings," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 58-77, March.
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    Cited by:

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    3. Bueno de Mesquita, Ethan & Landa, Dimitri, 2015. "Political accountability and sequential policymaking," Journal of Public Economics, Elsevier, vol. 132(C), pages 95-108.

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    More about this item

    Keywords

    Consumer welfare; Externalities; market power; Rankings; Rationing;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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