The Market for Evaluations

Abstract

Recent developments in computer networks have driven the cost of distributing information virtually to zero, creating extraordinary opportunities for sharing product evaluations. The authors present pricing and subsidy mechanisms that operate through a computerized market and induce the efficient provision of evaluations. The mechanisms overcome three major challenges: first, evaluations, which are public goods, are likely to be underprovided; second, an inefficient ordering of evaluators may arise; and third, the optimal quantity of evaluations depends on what is learned from the initial evaluations.

The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms

“…Avery, Resnick and Zeckhauser (1999) analyze mechanisms whereby early evaluators are paid to provide information and later evaluators pay in order to balance the budget. They conclude that, of the three desirable properties for such a mechanism (voluntary participation, no price discrimination and budget balance), any two can be achieved, but not all three.…”

A Dollar for Your Thoughts: Feedback-Conditional Rebates on eBay

“…A growing theoretical and empirical literature shows that a seller's reputation history is an important determinant of a seller's success, especially in online markets. Relevant contributions include Shapiro (1983), Avery et al (1999), Dellarocas (2003), Bolton et al (2004), Houser and Wooders (2006), Jin and Kato (2006), Resnick et al (2006), Cabral and Hortaçsu (2010), Grosskopf and Sarin (2010). In online markets, reputation systems usually rely on voluntary feedback from involved parties.…”

Why Do Intermediaries Divert Search?

“…Many of these intermediaries seem however, through some aspects of their design, to do quite the opposite of reducing search costs -and purposefully rather than by accident. For instance, e-commerce platforms increasingly use various forms of recommender systems 1 and contextual advertising in order to extend users' visits and shift -more or less subtly -their focus from the products they were initially looking for, towards "exploring" and "discovering" products they might be interested in -and eventually buy. And while these "diversion" tactics can take more varied and sophisticated forms online, they have long been used by offline intermediaries.…”