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Bad news turned good: reversal under censorship


Smirnov, Aleksei; Starkov, Egor (2018). Bad news turned good: reversal under censorship. Working paper series / Department of Economics 307, University of Zurich.

Abstract

Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.

Abstract

Sellers often have the power to censor the reviews of their products. We explore the effect of these censorship policies in markets where some consumers are unaware of possible censorship. We find that if the share of such “naive” consumers is not too large, then rational consumers treat any bad review that is revealed in equilibrium as good news about product quality. This makes bad reviews worth revealing and allows the high-type seller to use them as a costly signal of his product’s quality to rational consumers.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D82, D83, D90
Uncontrolled Keywords:Censorship, dynamic games, disclosure, moderated learning
Language:English
Date:November 2018
Deposited On:13 Nov 2018 16:44
Last Modified:13 Nov 2018 16:44
Series Name:Working paper series / Department of Economics
Number of Pages:48
ISSN:1664-7041
OA Status:Green
Official URL:http://www.econ.uzh.ch/static/workingpapers.php?id=986

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