American Economic Review Vol. 111 No. 6 2021

Digitization and Pre-Purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings

Imke Reimers¹; Joel Waldfogel²

¹ Department of Economics, Northeastern University (email: ) · ² Carlson School of Management and Department of Economics, University of Minnesota, NBER, and ZEW (email: )

Abstract

Digitization has led to many new creative products, straining the capacity of professional critics and consumers. Yet, the digitization of retailing has also delivered new crowd-based sources of pre-purchase information. We compare the relative impacts of professional critics and crowd-based Amazon star ratings on consumer welfare in book publishing. Using various fixed effects and discontinuity-based empirical strategies, we estimate their causal impacts on sales. We use these causal estimates to calibrate a structural demand model. The aggregate effect of star ratings on consumer surplus is, in our baseline estimates, more than ten times the effect of traditional review outlets.

DOI

10.1257/aer.20200153

Volume

111

Issue

6

Pages

1944-1971

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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