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Good Rankings Are Bad: Why Reliable Rankings Can Hurt Consumers

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  • Laurent Bouton
  • Georg Kirchsteiger

Abstract

Rankings have become increasingly popular on various markets, e.g. the market for study programs. We analyze their welfare implications. Consumers have to choose between two goods of unknown quality with exogenous presence or absence of an unbiased informative ranking. The existence of the ranking might affect the welfare of all consumers negatively. With rigid prices, the ranking induced change in demand can be detrimental to all consumers in markets featuring rationing or consumption externalities. With perfectly flexible prices, the ranking might increase firms' market power, and hence lead to losses for all consumers even in the absence of rationing and consumption externalities.

Suggested Citation

  • Laurent Bouton & Georg Kirchsteiger, 2015. "Good Rankings Are Bad: Why Reliable Rankings Can Hurt Consumers," NBER Working Papers 21083, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21083
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    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.
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    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. 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.
    7. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581, September.
    8. 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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    11. repec:dau:papers:123456789/12478 is not listed on IDEAS
    12. 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.
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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:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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