Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence

36 Pages Posted: 28 May 2020

Date Written: June 2019

Abstract

I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when consumers are rational. This finding moreover suggests that product reviews may serve as a coordination mechanism for early adopters. In an empirical application to the video game journalism industry, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre‐existing game franchises. Additionally, I find variation in inflation across genres that would be inconsistent with common alternative theories of inflation, such as consumer naivete.

Suggested Citation

Hamami, Tom, Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence (June 2019). The Journal of Industrial Economics, Vol. 67, Issue 2, pp. 372-407, 2019, Available at SSRN: https://ssrn.com/abstract=3609429 or http://dx.doi.org/10.1111/joie.12211

Tom Hamami (Contact Author)

Northwestern University, Department of Managerial Economics and Decision Sciences (MEDS), Students ( email )

Evanston, IL
United States

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