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

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  • Tom Hamami

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 fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, 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 that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.

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  • Tom Hamami, 2016. "Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence," 2016 Papers pha1136, Job Market Papers.
    • Handle: RePEc:jmp:jm2016:pha1136
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    Cited by:

    1. Vollaard, Ben & van Ours, Jan C., 2022. "Bias in expert product reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 105-118.
    2. Tom Hamami & James Bailey, 2021. "Expert product reviews and conflict of interest," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 170-176, January.

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    More about this item

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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