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Bad news turned good: reversal under censorship

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  • Aleksei Smirnov
  • Egor Starkov

Abstract

Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.

Suggested Citation

  • Aleksei Smirnov & Egor Starkov, 2018. "Bad news turned good: reversal under censorship," ECON - Working Papers 307, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:307
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    File URL: http://www.econ.uzh.ch/static/wp/econwp307.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Censorship; dynamic games; disclosure; moderated learning;

    JEL classification:

    • 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
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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