Harvesting Ratings

Ratings play a crucial role in online marketplaces, shaping consumer decisions and Ąrm strategies. We investigate how Ąrms strategically use pricing to influence ratings, and how this undermines ratings as signals of product quality. We develop a two-period model of price competition between an established firm and a potentially high- or low-quality entrant, capturing the challenge high-quality newcomers face in building reputation. Consumers rate based on value-for-money, but cannot distinguish whether positive ratings result from genuine quality or discounted prices. Low-quality entrants take advantage of this and may offer low prices to harvest good ratings in the future, or mimic high prices to signal high quality. We show that ratings harvesting inflates positive ratings, reducing their informativeness. This exacerbates the cold-start problem and discourages high-quality entry. Our results mirror empirical patterns and generate implications for how rating design affects market outcomes: reducing effort-costs to rate induces more but less-informative ratings, and discourages entry. Thus, actions by major marketplaces to encourage ratings could backĄre and induce less-precise ratings that discourage entry. To mitigate these effects, policymakers can consider balancing rating effort-costs to preserve informativeness, discouraging excessive discounts for new sellers, and incorporating price-paid into rating displays. While the effects of individual entrants' harvesting may appear temporary, harvesting hinders high-quality entrants from building reputation, discouraging entry and causing lasting distortions.