Can Platform Competition Drive Ratings Inflation? The Impact of Vertical Spillover Effects

The familiar 5-star ratings system is an important information source for consumers deciding where to eat or what products to buy. Ideally, a retail platform owner should safeguard ratings against various biases, yet platform owners sometimes let average ratings become inflated. We study a situation in which a platform faces competition from another platform that offers the same items and, consequently, consumers may see different ratings for items across the platforms. Using a series of experiments in an online food ordering setting, we show that consumers are more likely to buy the item from a platform where it is rated higher. Therefore, a platform that offers lower but perhaps more accurate ratings risks hurting itself by not letting its ratings become inflated. We explain this by a vertical spillover effect by which diverging average ratings across platforms influence platform choice and discuss implications to platform owners, regulators, and consumers.