Manipulation Through Biased Product Reviews

60 Pages Posted: 14 Nov 2017

See all articles by Kemal Kivanç Aköz

Kemal Kivanç Aköz

New York University (NYU) - New York University Abu Dhabi

Cemal Eren Arbatli

National Research University Higher School of Economics

Levent Çelik

National Research University Higher School of Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: November 8, 2017

Abstract

We analyze an information manipulation game in which consumers estimate the quality of a product using product reviews as a noisy source of information. A firm, whose product quality is either 'high' or 'low', exerts costly and hidden efforts to insert bias into product reviews. We first consider a case in which the price is uninformative about quality. We show that, in equilibrium, there is wasteful spending on manipulation by both firm types. Depending on the price level, either one type or both types enjoy higher sales compared to a situation in which there is no manipulation. Thus, the price level governs whether the bias in product reviews benefits or harms the consumers. A regulator can increase consumer surplus by charging a fixed fee to the firm for access to product review platforms. When we allow for informative pricing, we find that there are partially separating equilibria in which the low-type firm randomizes between choosing a low price and the high price that the high-type firm would choose. We show that in these equilibria, biased product reviews still influence demand. However, unlike the high-type firm, which can increase its sales through manipulation only at sufficiently high levels of prices, the low-type firm enjoys higher sales through manipulation at any admissible price.

Keywords: Information Manipulation, Bayesian Inference, Product Reviews, False Advertising, Price Signaling, Signal-Jamming

JEL Classification: D8, K4, L1, L4

Suggested Citation

Aköz, Kemal Kivanç and Arbatli, Cemal Eren and Çelik, Levent, Manipulation Through Biased Product Reviews (November 8, 2017). Available at SSRN: https://ssrn.com/abstract=3068345 or http://dx.doi.org/10.2139/ssrn.3068345

Kemal Kivanç Aköz

New York University (NYU) - New York University Abu Dhabi

PO Box 129188
Abu Dhabi
United Arab Emirates

Cemal Eren Arbatli

National Research University Higher School of Economics ( email )

26 Shabolovka Street
1215
Moscow, 119049
Russia

HOME PAGE: http://https://sites.google.com/site/erenarbatli/home

Levent Çelik (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya 20
Moscow, Moscow 101000
Russia

HOME PAGE: http://www.hse.ru/en/

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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