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Bad news turned good: reversal under censorship

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  • Aleksei Smirnov
  • Egor Starkov

Abstract

Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.

Suggested Citation

  • Aleksei Smirnov & Egor Starkov, 2018. "Bad news turned good: reversal under censorship," ECON - Working Papers 307, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:307
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    Cited by:

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    2. Starkov, Egor, 2023. "Only time will tell: Credible dynamic signaling," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    3. Elina Ishmukhametova & Marina Sandomirskaia, 2023. "The Problem Of Reputation Reliability In Online Freelance Markets," HSE Working papers WP BRP 260/EC/2023, National Research University Higher School of Economics.
    4. Boris Knapp, 2021. "Fake Reviews and Naive Consumers," Vienna Economics Papers vie2102, University of Vienna, Department of Economics.
    5. Matveenko, Andrei & Starkov, Egor, 2023. "Sparking curiosity or tipping the scales? Targeted advertising with consumer learning," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 172-192.
    6. Boris Knapp, 2021. "Fake Reviews and Naive Consumers," Vienna Economics Papers 2102, University of Vienna, Department of Economics.
    7. Casner, Ben, 2020. "Seller curation in platforms," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    8. Søren Johansen & Anders Ryghn Swensen, 2021. "Adjustment coefficients and exact rational expectations in cointegrated vector autoregressive models," CREATES Research Papers 2021-10, Department of Economics and Business Economics, Aarhus University.

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    More about this item

    Keywords

    Censorship; dynamic games; disclosure; moderated learning;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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