June 28, 2019

Brown Bag Seminar Cluster Industrial Economics

Consumer Rating Dynamics

Date

June 28, 2019
10:30 - 11:30

Location

Anna J. Schwartz Room
Room 5.2.010
Mohrenstraße 58
10117 Berlin

Speaker

Christoph Wolf

(joint with André Stenzel and Peter Schmidt)

We consider dynamic price-setting in the presence of rating systems and asymmetric information about product quality. We provide a framework in which the price charged determines the characteristics of purchasing consumers. The price has two effects on future ratings: (i) a direct price effect on reviews, and (ii) an indirect selection effect through the determination of the set of reviewing consumers. We provide empirical evidence for the relevance of both effects. We theoretically show that rating systems are effective: consumers learn the quality of the product in the long run. However, the design of the rating system affects consumer surplus: if the direct price effect dominates, consumers benefit from long memory but if the selection effect dominates, consumers benefit from long memory. Firms are unambiguously worse off the longer the memory because exploitation of reputation has long-lasting effects.

Speaker

Christoph Wolf, Bocconi University, Milano

Topics: Consumers, Firms