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Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence

Author

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  • Tom Hamami

Abstract

I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when consumers are rational. This finding moreover suggests that product reviews may serve as a coordination mechanism for early adopters. In an empirical application to the video game journalism industry, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre‐existing game franchises. Additionally, I find variation in inflation across genres that would be inconsistent with common alternative theories of inflation, such as consumer naivete.

Suggested Citation

  • Tom Hamami, 2019. "Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 372-407, June.
    • Handle: RePEc:bla:jindec:v:67:y:2019:i:2:p:372-407
    DOI: 10.1111/joie.12211
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    Cited by:

    1. Vollaard, Ben & van Ours, Jan C., 2022. "Bias in expert product reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 105-118.
    2. Tom Hamami & James Bailey, 2021. "Expert product reviews and conflict of interest," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 170-176, January.

    More about this item

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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