Good Rankings are Bad: Why Reliable Rankings Can Hurt Consumers

31 Pages Posted: 13 Apr 2015 Last revised: 9 Feb 2022

See all articles by Laurent Bouton

Laurent Bouton

Georgetown University - Department of Economics

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2015

Abstract

Rankings have become increasingly popular on various markets, e.g. the market for study programs. We analyze their welfare implications. Consumers have to choose between two goods of unknown quality with exogenous presence or absence of an unbiased informative ranking. The existence of the ranking might affect the welfare of all consumers negatively. With rigid prices, the ranking induced change in demand can be detrimental to all consumers in markets featuring rationing or consumption externalities. With perfectly flexible prices, the ranking might increase firms' market power, and hence lead to losses for all consumers even in the absence of rationing and consumption externalities.

Suggested Citation

Bouton, Laurent and Kirchsteiger, Georg, Good Rankings are Bad: Why Reliable Rankings Can Hurt Consumers (April 2015). NBER Working Paper No. w21083, Available at SSRN: https://ssrn.com/abstract=2593662

Laurent Bouton (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt 50
CP 114
Brussels, B-1050
Belgium

HOME PAGE: http://www.ecares.org/people/members/kirchsteiger/kirchsteiger/home.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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