The Battle Against Rating Management – Does Lowering Barriers To Rate Improve The Informativeness of The Rating Consensus on Online Platforms?

66 Pages Posted: 18 Nov 2021 Last revised: 29 Aug 2022

See all articles by Oliver Hegers

Oliver Hegers

University of Amsterdam

Matthias D. Mahlendorf

Frankfurt School of Finance & Management

Date Written: September 1, 2021

Abstract

Online platforms such as Amazon.com, Google, and Glassdoor have to design policies for submitting ratings. We investigate how lowering barriers to rate affects the informativeness of the rating consensus - a crowd-sourced performance measure. In 2020, Amazon.com introduced a new one-tap rating system, whereas before, a written text review was required to rate a product. Changing the cost of submitting ratings may affect the underlying distribution of raters (i.e., satisfied and unsatisfied customers, sellers of managed ratings). Our analyses show that after the policy change, the average rating increases, and the effect is stronger for lower-rated products. Thus, the rating consensus becomes less informative for platform users to discriminate between products. A potential explanation is that lowering the barriers makes it cheaper to provide managed ratings which may outweigh a potential increase in authentic ratings. Alternatively, relatively more satisfied customers make use of the new option. The results of several additional analyses are consistent with both explanations.

Keywords: Wisdom of crowds, platforms, non-financial information, informativeness, rating manipulations, rating management, rating inflation, fake reviews, Amazon.com

JEL Classification: D20, D82, M10, M31, M41

Suggested Citation

Hegers, Oliver and Mahlendorf, Matthias D., The Battle Against Rating Management – Does Lowering Barriers To Rate Improve The Informativeness of The Rating Consensus on Online Platforms? (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3965749 or http://dx.doi.org/10.2139/ssrn.3965749

Oliver Hegers (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Matthias D. Mahlendorf

Frankfurt School of Finance & Management ( email )

Adickesallee 34
Frankfurt, DE RLP 60322
Germany

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