Digitization and pre-purchase information: The causal and welfare impacts of reviews and crowd ratings

Imke Reimers, Joel Waldfogel

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)944-1971
Number of pages1028
JournalAmerican Economic Review
Volume111
Issue number6
DOIs
StatePublished - Jun 2021
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2021 American Economic Association. All rights reserved.

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