DP18021 Ratings & Reciprocity
We explore how firms use prices to impact their ratings. To do so, we follow extensive evidence that reciprocity motivates ratings and incorporate reciprocity into a model of ratings: consumers rate a seller if they get a sufficient value-for-money. We show firms harvest ratings: they offer lower prices in early periods to trigger consumers’ reciprocity and improve ratings and future profits. We show this mechanism implies that (i) reciprocity-based ratings cause rating inflation; (ii) facilitating ratings (through reminders, pay-to-rate...) leads to more- but less-informative ratings. Consumers benefit from lower prices despite less-informative ratings, and prefer more-informative ratings than average sellers.