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Good rankings are bad - Why reliable rankings can hurt consumers



    (Department of Economics, Boston University)

Ranking have become increasingly popular on markets for study programs, restau- rants, 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 o¤. 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 e¤ect on rationing. Furthermore, this change in demand can also be detrimental due to consumption externalities. Finally, with perfectly ?exible prices the ranking might increase the market power of ?rms and hence lead to losses for all consumers.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2011-002.

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Length: 26 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:bos:wpaper:wp2011-002
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  1. Ignacio Palacios-Huerta & Oscar Volij, 2002. "The Measurement of Intellectual Influence," Economic theory and game theory 015, Oscar Volij.
  2. Alan T. Sorensen, 2007. "BESTSELLER LISTS AND PRODUCT VARIETY -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 715-738, December.
  3. 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.
  4. Michael Luca, 2011. "Reviews, Reputation, and Revenue: The Case of," Harvard Business School Working Papers 12-016, Harvard Business School.
  5. Pope, Devin G., 2009. "Reacting to rankings: Evidence from "America's Best Hospitals"," Journal of Health Economics, Elsevier, vol. 28(6), pages 1154-1165, December.
  6. Glazer, Jacob & McGuire, Thomas G., 2006. "Optimal quality reporting in markets for health plans," Journal of Health Economics, Elsevier, vol. 25(2), pages 295-310, March.
  7. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2010. "An Updated Ranking of Academic Journals in Economics," Working Papers 1009, University of Guelph, Department of Economics and Finance.
  8. Alessandro Gavazza & Alessandro Lizzeri, 2007. "The Perils of Transparency in Bureaucracies," American Economic Review, American Economic Association, vol. 97(2), pages 300-305, May.
  9. Anderson, Simon P & Renault, Regis, 2000. "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 721-42, August.
  10. repec:ema:worpap:2008-29 is not listed on IDEAS
  11. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
  12. Michael Luca & Jonathan Smith, 2011. "Salience in Quality Disclosure: Evidence from the U.S. News College Rankings," Harvard Business School Working Papers 12-014, Harvard Business School.
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