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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.

Suggested Citation

  • Laurent Bouton, 2011. "Good rankings are bad - Why reliable rankings can hurt consumers," Boston University - Department of Economics - Working Papers Series WP2011-002, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2011-002

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    References listed on IDEAS

    1. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2011. "An updated ranking of academic journals in economics," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1525-1538, November.
    2. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
    3. Michael Luca, 2011. "Reviews, Reputation, and Revenue: The Case of," Harvard Business School Working Papers 12-016, Harvard Business School, revised Mar 2016.
    4. Ignacio Palacios-Huerta & Oscar Volij, 2004. "The Measurement of Intellectual Influence," Econometrica, Econometric Society, vol. 72(3), pages 963-977, May.
    5. 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.
    6. Alessandro Gavazza & Alessandro Lizzeri, 2007. "The Perils of Transparency in Bureaucracies," American Economic Review, American Economic Association, vol. 97(2), pages 300-305, May.
    7. Alan T. Sorensen, 2007. "BESTSELLER LISTS AND PRODUCT VARIETY -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 715-738, December.
    8. repec:dau:papers:123456789/12478 is not listed on IDEAS
    9. 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.
    10. 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 721-742, August.
    11. Michael Luca & Jonathan Smith, 2013. "Salience in Quality Disclosure: Evidence from the U.S. News College Rankings," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 58-77, March.
    12. 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.
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    Cited by:

    1. V. Ginsburgh & Sheila Weyers, 2014. "Nominees, winners, and losers," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 38(4), pages 291-313, November.
    2. Legge, Stefan & Schmid, Lukas, 2013. "Rankings, Random Successes, and Individual Performance," Economics Working Paper Series 1340, University of St. Gallen, School of Economics and Political Science.
    3. Bueno de Mesquita, Ethan & Landa, Dimitri, 2015. "Political accountability and sequential policymaking," Journal of Public Economics, Elsevier, vol. 132(C), pages 95-108.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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