AUTHOR=Nax Heinrich H. 

TITLE=The Logic of Collective Rating

JOURNAL=Frontiers in Physics

VOLUME=Volume 4 - 2016

YEAR=2016

URL=https://www.frontiersin.org/journals/physics/articles/10.3389/fphy.2016.00015

DOI=10.3389/fphy.2016.00015

ISSN=2296-424X

ABSTRACT=The introduction of participatory rating mechanisms on online sales platforms has had substantial impact on firms' sales and profits. In this note, we develop a dynamic model of consumer influences on ratings and of rating influences on consumers, focussing on standard 5-star mechanisms as implemented by many platforms. The key components of our social influence model are the consumer trust in the `wisdom of crowds' during the purchase phase and indirect reciprocity during the rating decision. Our model provides an overarching explanation for well-corroborated empirical regularities. We quantify the performance of the voluntary rating mechanism in terms of realized consumer surplus with the no-mechanism and full-information benchmarks, and identify how it could be improved.