I remember when the New York Times food critic Pete Wells named a small ramen pop-up shop in Queens his favorite in New York City. It was refreshing to see a then no-name shop beat out the big establishments, but it was also a certified bummer: My friends and I knew there was no chance we’d get to eat there anytime soon. And in fact, things actually seemed to get worse—after being named number one, the shop was so overwhelmed by customers that the owners shut the shop down. Many blamed The Times for closing the best ramen shop in the city though the owners later stated that they closed because they were afraid of a crackdown on the pop-up after so much press.
The surge in customers to one’s favorite spot causing negative effects is what economists call consumption externalities—when a spike in consumers either raises prices or makes others worse off. In a new paper, economists Laurent Bouton and Georg Kirchsteiger consider whether information regarding the quality of something is really a good thing for customers, and they find that it can be harmful.
“The starting point of this project is probably the never-ending debate about university rankings,” explains Bouton. “The focus was (and is still) mostly on the methodology of these rankings… Even if the accuracy of the measurement of quality is obviously a very important component of any ranking, we were thinking about this ranking debate from a different angle: Let’s assume that rankings are perfectly accurate, are they always good for consumers? We were particularly interested in identifying the type of markets in which rankings could be harmful for consumers.”