The Economic Significance of User-Generated Feedback

This paper examines the impact of user-generated feedback on price at a price comparison site or shopbot. It employs a modified hedonic price function to explore the use made by current potential consumers of the experience of past actual consumers in evaluating quality attributes that were not observable when the product was initially launched on to the market. Using a database of daily observations on 211 digital cameras traded on NexTag.com, we find that the product’s star rating, reflecting all the available individual assessments of the product, has a significant negative impact on the discount on the manufacturer’s recommended selling price at which the product is offered.