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Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence
Author(s) -
Hamami Tom
Publication year - 2019
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12211
Subject(s) - economics , product (mathematics) , inflation (cosmology) , construct (python library) , microeconomics , bargaining power , game theory , mechanism (biology) , empirical evidence , marketing , advertising , industrial organization , business , computer science , philosophy , physics , geometry , mathematics , epistemology , theoretical physics , programming language
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.