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Ratings and Reciprocity

Author

Listed:
  • Johnen, Johannes

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Ng, Robin

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract
Evidence suggests online ratings and reviews are motivated by reciprocity. We incorporate a standard model of reciprocity into a model of ratings to capture that consumers are only willing to make the effort to rate a seller if this seller provides a sufficient value-for-money. Using this model, we explore how firms use prices to impact their own ratings. We show that firms harvest ratings: they offer lower prices in early periods to trigger consumers’ reciprocal behaviour and obtain a good rating and larger profits in the future. Because also low-quality firms harvest ratings, reciprocity makes ratings less-informative about quality. Based on this mechanism, (i) we argue that reciprocity-based ratings cause rating inflation; (ii) we show that a marketplace that facilitates ratings (e.g. through reminders, one-click ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace that screens the quality of sellers makes ratings less-informative if the screening is insufficient. We show that even as ratings become less-informative, consumers can benefit from lower prices. Nonetheless consumers prefer more-informative ratings than average sellers. We apply these results to characterise when a two-sided platform wants to facilitate ratings, and thereby undermines the informativeness of ratings and harms consumers.

Suggested Citation

  • Johnen, Johannes & Ng, Robin, 2023. "Ratings and Reciprocity," LIDAM Discussion Papers CORE 2023006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2023006
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    References listed on IDEAS

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    Cited by:

    1. Belleflamme, Paul & Johnen, Johannes, 2023. "Non-Price Strategies of Marketplaces: A Survey," LIDAM Discussion Papers CORE 2023015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Reciprocity ; Ratings and Reviews ; Digital Economy ; Reputation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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