It plots of land the change inside RA1’s approach as the quantity of periods leftover increases. Profile gets less and less essential while the quantity of episodes remaining refuses since there are less periods to help you enjoy the pros off large reputation. For this reason, rating rising cost of living grows. Remember that, because the quantity of periods kept expands, the methods converges, implying that individuals means a lengthy (infinite) horizon equilibrium.
In a nutshell, our very own show demonstrate that unveiling competition when it comes to a second RA is not sufficient to punishment new RAs and this constantly rest which have self-confident opportunities in balance. We have now reveal that battle will actually enhance the lax behaviour out of RAs and relieve questioned appeal.
5.3 Comparing monopolistic and competitive RA
It was ideal that initiating more race in the reviews business can be alleviate the problem of inappropriate bonuses and score inflation. Yet not, our abilities reveal that race sometimes worsen this situation and you will trigger more rating rising cost of living.
We could see that the business-sharing perception reigns over the fresh disciplining perception (i
Figure 11 compares the strategic behaviour of RA1 under bbwdatefinder no competition, that is, monopolistic RA ( q2 = 0 ), and under a competitive setting with different values of q2 . We observe that in most cases, RA1 is prone to greater rating inflation relative to the monopolistic RA.
As described before, the implication of competition can be divided into the market-sharing effect and the disciplining effect. e., competition aggravates lax behaviour) in most cases. The only case where competition may actually alleviate the lax behaviour of RA1 is when q2 is very low (as shown in Figure 10). This is because the market-sharing effect is weakest relative to the disciplining effect for low values of q2 . Intuitively, the disciplining effect only depends on the difference between q1 and q2 ; whereas, the market-sharing effect increases with the absolute level of q2 . Hence, the market-sharing effect tends to dominate the disciplining effect except for low values of q2 .
As shown in Figure 12, the expected increase in lax behaviour of RA1 is always positive, indicating that competition will, in general, aggravate rating inflation. This is because a smaller market share will tend to reduce the reputational concerns of the RAs, and this market-sharing effect outweighs the disciplining effect brought by competition. Moreover, we can see that the expected increase in lax behaviour is increasing for low values of RA1’s own reputation and decreasing for high values of RA1’s reputation. The intuition is that, when the reputation of RA1 is low, the market share of RA1 is going to shrink significantly after introducing RA2 and the market-sharing effect of competition is strongest. However, when the reputation of RA1 is high, the impact of introducing RA2 on RA1’s market share is small, hence the market-sharing effect becomes weaker and RA1 will lie relatively less. We verify that the excess lax behaviour, as defined above, is always positive for other values of ? and pGrams in Appendix B.1, Figures 17 and 18.
Figure thirteen measures up the entire welfare between the monopolistic circumstances and the fresh new duopolistic instance in which one another RAs have a similar reputation. 21 21 We are calculating new passions in one single period simply as it doesn’t count on big date. We can observe that if the an alternative RA is actually put which have an identical character as the incumbent RA, then full welfare will always drop off, because one another RAs are more inclined to inflate reviews.
Moreover, when we compare in Figure 14, the expected total welfare between the monopolistic case and the duopolistic case with fixed values of reputations of RA2, we can see that introducing competition will always lead to lower total welfare as long as the reputation of RA2 is lower than the reputation of RA1. However, total welfare may increase if the entrant RA has a higher reputation than the incumbent. Overall, this implies that competition is likely to adversely impact total welfare, unless we can introduce a new RA with much higher reputation than the incumbent. We check the robustness of this result for different values of ? and pG in Appendix B.2.