Ratings Design and Barriers to Entry

Vellodi, Nikhil

doi:10.2139/ssrn.3267061

Cited by 13 publications

(9 citation statements)

References 57 publications

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“…My advice to platforms is partly at odds with some recent contributions to the literature on platform design and "crowdsourced exploration". Kremer et al [2014], Papanastasiou et al [2017], Che and Hörner [2017] and Vellodi [2018] consider the problem of a platform incentivising exploration by consumers, to generate positive externalities (through product discovery) and maximise their long-term utility. They show that, with rational consumers, the optimal policy involves a positive amount of spamming of new and unproven options.…”

Section: Related Literaturementioning

confidence: 99%

“…One could assume whether allowing them this possibility solves the problem. However, other existing models of learning from reviews highlights the barriers to entry reviews posit (Vellodi [2018]), as well as the unwillingness of consumers to experiment with unproven options (Kremer et al [2014], Papanastasiou et al [2017]). Therefore, they also feature increasing market concentration over time.…”

Section: Learning About Qualitymentioning

confidence: 99%

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Alone, Together: Product Discovery Through Consumer Ratings

Bondi

2019

SSRN Journal

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Consumer ratings have become a prevalent driver of choice. I develop a model of social learning in which ratings can inform consumers about both product quality and their idiosyncratic taste for them. Depending on consumers' prior knowledge, I show that ratings relatively advantage lower quality and more polarizing products. The reason lies in the stronger positive consumer self-selection these products generate: to buy them despite their deficiencies, their buyers must have a strong taste for them. Relatedly, consumer ratings should not be used to infer which products are polarizing: what is polarizing ex-ante needs not be so among its buyers. I test these predictions using Goodreads book ratings data, and find strong evidence for them. Goodreads appears to serve mostly a matching purpose: tracking the behavior of its users over time reveals an increasing degree of specialization as they gather experience on the platform: they rate books with a lower average and number of ratings, while focusing on fewer genres. Thus, they become less similar to their average peer. Taken together, the findings suggest that consumer ratings contribute to both the long tail and, relatedly, consumption segregation. For managers, this illustrates, counterintuitively, the reputational benefits of polarizing products, particularly early in a firm's lifecycle, but only when paired with the ability to match with the right consumers.

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Section: Related Literaturementioning

confidence: 99%

Section: Learning About Qualitymentioning

confidence: 99%

Alone, Together: Product Discovery Through Consumer Ratings

Bondi

2019

SSRN Journal

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“…Indeed, Vellodi (2021) shows that suppressing the ratings of top-rated firms could lead to increased entry and, consequently, improve consumer welfare. While mechanically distinct, Apple's initial reputation system is in many ways akin to the upper certification policy Vellodi considers.…”

Section: Discussionmentioning

confidence: 99%

Platform Design and Innovation Incentives: Evidence from the Product Ratings System on Apple's App Store

Leyden

2021

SSRN Journal

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A lack of platform-level competition among digital marketplaces can result in socially inefficient platform design and meaningful welfare losses, even independent of actively anticompetitive behavior. To illustrate the first-order effects platform design can have on competitive outcomes, I investigate how the longstanding design of the product ratings system on Apple's App Store affected innovative behavior by platform participants. I leverage an exogenous change in this system to show that for nearly a decade, the design of the App Store's product ratings system led to less frequent product updating by high-quality products. I provide suggestive evidence that this policy resulted in lost, as opposed to simply delayed, innovation.

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“…Note that the paper's purpose is not to model the optimization process of a platform developing a buyers' review system. This analysis is proposed by Vellodi (2018), who studies the impact of review reports in a model with no manipulation where a platform designs a rating system of heterogeneous sellers. He shows that full information transparency paradoxically works as an entry barrier and can cause adverse selection.…”

Section: Related Literaturementioning

confidence: 99%