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Ratings design and barriers to entry

Author

Listed:
  • Vellodi, Nikhil

    (Paris School of Economics)

Abstract

I study the impact of consumer reviews on the incentives for firms to participate in the market. I develop a framework in which firms produce goods of heterogeneous, unknown quality and face both entry and exit decisions. A rater uses consumer reviews to construct firm-specific ratings that are informative of quality and thus shape consumer demand. The main insight of the paper is that suppressing the reviews of highly-rated firms stimulates entry and improves consumer welfare.

Suggested Citation

  • Vellodi, Nikhil, 0. "Ratings design and barriers to entry," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:6338
    as

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    More about this item

    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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