[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/26776.html
   My bibliography  Save this paper

Digitization and Pre-Purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings

Author

Listed:
  • Imke C. Reimers
  • Joel Waldfogel
Abstract
Digitization has led to product proliferation, straining traditional institutions for product discovery; but digitization has also spawned crowd-based rating systems. We compare the relative impacts of professional critics and crowd-based Amazon star ratings on consumer welfare in book publishing. We assemble data on daily Amazon sales ranks, star ratings, and prices for thousands of books in 2018, along with information on their professional reviews in several major outlets. Using various fixed effects and discontinuity-based empirical strategies, we estimate that a New York Times review raises estimated sales by 78 percent during the first five days following a review; and the elasticity of sales with respect to an Amazon star is about 0.75. We use these causal estimates to calibrate structural models of demand for measuring the welfare impact of pre-purchase information in a way that respects the distinction between ex ante and ex post utility. The aggregate effect of star ratings on consumer surplus is roughly 15 times the effect of traditional review outlets. Crowd-based information now accounts for the vast majority of pre-purchase information, but the absolute effects of professional reviews have not declined over time.

Suggested Citation

  • Imke C. Reimers & Joel Waldfogel, 2020. "Digitization and Pre-Purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings," NBER Working Papers 26776, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26776
    Note: IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w26776.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jin, Ginger Zhe & Sorensen, Alan T., 2006. "Information and consumer choice: The value of publicized health plan ratings," Journal of Health Economics, Elsevier, vol. 25(2), pages 248-275, March.
    2. Chiara Farronato & Andrey Fradkin & Bradley J. Larsen & Erik Brynjolfsson, 2024. "Consumer Protection in an Online World: An Analysis of Occupational Licensing," American Economic Journal: Applied Economics, American Economic Association, vol. 16(3), pages 549-579, July.
    3. Helmers, Christian & Krishnan, Pramila & Patnam, Manasa, 2019. "Attention and saliency on the internet: Evidence from an online recommendation system," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 216-242.
    4. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
    5. David A. Reinstein & Christopher M. Snyder, 2005. "The Influence Of Expert Reviews On Consumer Demand For Experience Goods: A Case Study Of Movie Critics," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 27-51, March.
    6. Alexandre Belloni & Victor Chernozhukov & Christian Hansen, 2014. "High-Dimensional Methods and Inference on Structural and Treatment Effects," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 29-50, Spring.
    7. Michael Luca, 2011. "Reviews, Reputation, and Revenue: The Case of Yelp.com," Harvard Business School Working Papers 12-016, Harvard Business School, revised Mar 2016.
    8. Imke Reimers & Joel Waldfogel, 2017. "Throwing the Books at Them: Amazon's Puzzling Long Run Pricing Strategy," Southern Economic Journal, John Wiley & Sons, vol. 83(4), pages 869-885, April.
    9. Craig L. Garthwaite, 2014. "Demand Spillovers, Combative Advertising, and Celebrity Endorsements," American Economic Journal: Applied Economics, American Economic Association, vol. 6(2), pages 76-104, April.
    10. Joel Waldfogel, 2017. "How Digitization Has Created a Golden Age of Music, Movies, Books, and Television," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 195-214, Summer.
    11. Judith Chevalier & Austan Goolsbee, 2003. "Measuring Prices and Price Competition Online: Amazon.com and BarnesandNoble.com," Quantitative Marketing and Economics (QME), Springer, vol. 1(2), pages 203-222, June.
    12. Train, Kenneth, 2015. "Welfare calculations in discrete choice models when anticipated and experienced attributes differ: A guide with examples," Journal of choice modelling, Elsevier, vol. 16(C), pages 15-22.
    13. Jonah Berger & Alan T. Sorensen & Scott J. Rasmussen, 2010. "Positive Effects of Negative Publicity: When Negative Reviews Increase Sales," Marketing Science, INFORMS, vol. 29(5), pages 815-827, 09-10.
    14. Imke Reimers, 2019. "Copyright and Generic Entry in Book Publishing," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 257-284, August.
    15. Luis Aguiar & Joel Waldfogel, 2018. "Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 492-524.
    16. Waldfogel, Joel & Reimers, Imke, 2015. "Storming the gatekeepers: Digital disintermediation in the market for books," Information Economics and Policy, Elsevier, vol. 31(C), pages 47-58.
    17. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    18. Alan T. Sorensen, 2007. "Bestseller Lists And Product Variety," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 715-738, December.
    19. Chris Forman & Anindya Ghose & Batia Wiesenfeld, 2008. "Examining the Relationship Between Reviews and Sales: The Role of Reviewer Identity Disclosure in Electronic Markets," Information Systems Research, INFORMS, vol. 19(3), pages 291-313, September.
    20. Siqi Liu & Bhoomija Ranjan & Benjamin Reed Shiller, 2020. "Are Coarse Ratings Fine? Applications to Crashworthiness Ratings," Working Papers 132, Brandeis University, Department of Economics and International Business School.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. McMullen, Jeffery S. & Ding, Amy Wenxuan & Li, Shibo, 2021. "From cultural entrepreneurship to economic entrepreneurship in cultural industries: The role of digital serialization," Journal of Business Venturing, Elsevier, vol. 36(6).
    2. Maximilian Maurice Gail & Phil-Adrian Klotz, 2021. "The Impact of the Agency Model on E-book Prices: Evidence from the UK," MAGKS Papers on Economics 202111, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Aguiar, Luis & Waldfogel, Joel & Waldfogel, Sarah, 2021. "Playlisting favorites: Measuring platform bias in the music industry," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    4. Joel Waldfogel, 2021. "Digitization and Its Consequences for Creative-Industry Product and Labor Markets," NBER Chapters, in: The Role of Innovation and Entrepreneurship in Economic Growth, pages 397-424, National Bureau of Economic Research, Inc.
    5. Nicolas Lagios & Pierre-Guillaume Méon, 2023. "A Matter of Taste: The Negative Welfare Effect of Expert Judgments," Working Papers CEB 23-009, ULB -- Universite Libre de Bruxelles.
    6. Eyal Carmi & Gal OEstreicher-Singer & Arun Sundararajan, 2010. "Is Oprah Contagious? Identifying Demand Spillovers in Product Networks," Working Papers 10-18, NET Institute.
    7. Octavian Carare, 2012. "The Impact Of Bestseller Rank On Demand: Evidence From The App Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 717-742, August.
    8. Christian Peukert & Margaritha Windisch, 2023. "The Economics of Copyright in the Digital Age," CESifo Working Paper Series 10687, CESifo.
    9. Kaiser, Franziska & Cuntz, Alexander & Peukert, Christian, 2023. "Batman forever? The role of trademarks for reuse in the US comics industry," Research Policy, Elsevier, vol. 52(8).
    10. Meiseberg, Brinja, 2016. "The Effectiveness of E-tailers’ Communication Practices in Stimulating Sales of Niche versus Popular Products," Journal of Retailing, Elsevier, vol. 92(3), pages 319-332.
    11. Christian Peukert & Imke Reimers, 2022. "Digitization, Prediction, and Market Efficiency: Evidence from Book Publishing Deals," Management Science, INFORMS, vol. 68(9), pages 6907-6924, September.
    12. Mary J. Benner & Joel Waldfogel, 2023. "Changing the channel: Digitization and the rise of “middle tail” strategies," Strategic Management Journal, Wiley Blackwell, vol. 44(1), pages 264-287, January.
    13. Thomas W. Quan & Kevin R. Williams, 2016. "Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail," Cowles Foundation Discussion Papers 2054, Cowles Foundation for Research in Economics, Yale University.
    14. Limin Fang, 2022. "The Effects of Online Review Platforms on Restaurant Revenue, Consumer Learning, and Welfare," Management Science, INFORMS, vol. 68(11), pages 8116-8143, November.
    15. Michela Ponzo & Vincenzo Scoppa, 2015. "Experts’ awards and economic success: evidence from an Italian literary prize," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(4), pages 341-367, November.
    16. Alexander Cuntz, 2018. "Creators' Income Situation in the Digital Age," WIPO Economic Research Working Papers 49, World Intellectual Property Organization - Economics and Statistics Division.
    17. Juan Feng & Xin Li & Xiaoquan (Michael) Zhang, 2019. "Online Product Reviews-Triggered Dynamic Pricing: Theory and Evidence," Information Systems Research, INFORMS, vol. 30(4), pages 1107-1123, December.
    18. Cuntz, Alexander & Bergquist, Kyle, 2022. "Exclusive content and platform competition in Latin America," Information Economics and Policy, Elsevier, vol. 60(C).
    19. Thomas W. Quan & Kevin R. Williams, 2017. "Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail," Cowles Foundation Discussion Papers 2054R3, Cowles Foundation for Research in Economics, Yale University, revised Jun 2018.
    20. Keuschnigg, Marc, 2015. "Product Success in Cultural Markets: The Mediating Role of Familiarity, Peers, and Experts," MPRA Paper 63444, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:26776. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.