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The Economic Value of Meta-Report Cards: The Case of Automobiles

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Document pages: 47 pages

Abstract: Meta-Report cards are the product report cards that aggregate information from multiple public sources with the purported goal of easing consumer decision making. Whether and how these report cards are valuable to consumers remains unclear and forms the basis for this research. For the purpose, the authors use a revealed preferences approach with data from the U.S. automobile industry where U.S. News & World Report (USNWR) introduced a meta-report card in 2007 that synthesizes information from multiple public sources, such as J.D. Power, Kelly Blue Book, among many others. The authors conceptualize the introduction of this meta-report card as a natural experiment, with a pre-post (before 2007 and after 2006), treatment-control (brands rated and brands not rated) design. Complementing the USNWR ratings with data from multiple other sources, the authors estimate a nested logit demand model for brand choice with aggregate data and include the USNWR rating as an endogenous product characteristic. The results show that the presence of brands on USNWR meta-report card translates to societal benefit of $10.53 for an average consumer. On an average, one standard deviation improvement on USNWR ratings (measured on a 10-point scale with standard deviation of .58) enables a brand to charge $3560 more or save around $12 million on advertising. The results also provide evidence for search cost reduction and quality assurance as the underlying mechanism for the effect of meta-report card.

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