claim: [p. 1] W03_ARBEL_GRAPHICS_REVISED.DOCX (DO NOT DELETE) 1/30/20 11:10 AM REPUTATION FAILURE: THE LIMITS OF MARKET DISCIPLINE IN CONSUMER MARKETS Yonathan A. Arbel* Many believe that consumer-sourced reputational information about products should increasingly replace topdown regulation. Instead of protecting consumers through coercive laws, reputational information gleaned from the wisdom of the crowd would guide consumer decision-making. There is now a growing pressure to deregulate in diverse...

evidence_quote: [p. 1] W03_ARBEL_GRAPHICS_REVISED.DOCX (DO NOT DELETE) 1/30/20 11:10 AM REPUTATION FAILURE: THE LIMITS OF MARKET DISCIPLINE IN CONSUMER MARKETS Yonathan A. Arbel* Many believe that consumer-sourced reputational information about products should increasingly replace topdown regulation. Instead of protecting consumers through coercive laws, reputational information gleaned from the wisdom of the crowd would guide consumer decision-making. There is now a growing pressure to deregulate in diverse fields such as contracts, products liability, consumer protection, and occupational licensing. This Article presents a common failure mode of systems of reputation: “Reputation Failure.” By...

citation: Yonathan A. Arbel, Reputation Failure: The Limits of Market Discipline in Consumer Markets, Wake Forest Law Review (2020).

confidence: machine-linked

limitations: Machine-linked claim. Use the evidence quote and PDF before treating it as a quotation or as a complete statement of the paper's position.


claim: Consumer-sourced reputation systems, widely believed to replace formal regulation, suffer from inherent "Reputation Failure." Due to the public-good nature of reviews and misaligned incentives, these systems produce systematically distorted information (e.g., sluggishness, extreme reviews). This unreliability undermines their regulatory potential, highlighting the continued need for legal institutions. Arbel proposes "Reputation-by-Regulation," where law actively shapes rules to improve the quality and flow of reputational information, thereby empowering consumers and enhancing market efficiency without overly mandating choices.

paper_title: Reputation Failure: The Limits of Market Discipline in Consumer Markets

evidence_span: [p. 1] W03_ARBEL_GRAPHICS_REVISED.DOCX (DO NOT DELETE) 1/30/20 11:10 AM REPUTATION FAILURE: THE LIMITS OF MARKET DISCIPLINE IN CONSUMER MARKETS Yonathan A. Arbel* Many believe that consumer-sourced reputational information about products should increasingly replace topdown regulation. Instead of protecting consumers through coercive laws, reputational information gleaned from the wisdom of the crowd would guide consumer decision-making. There is now a growing pressure to deregulate in diverse fields such as contracts, products liability, consumer protection, and occupational licensing. This Article presents a common failure mode of systems of reputation: “Reputation Failure.” By...


claim: The Inadequacy of Unregulated Reputation and Call for Intervention: consumers struggle with the scale of qualitative review analysis and detecting sophisticated fakes; any heuristics they develop are exploitable. Distorted peer-to-peer information leads to "reputation failures," undermining arguments for deregulation by causing persistent consumer mistakes and negative market dynamics akin to a "lemon market." Modern deregulation debates often overlook these systematic failures, highlighting the need for legal interventions to facilitate quality reputational information and temper unjustified deregulatory trends.

evidence_quote: [p. 48] W03_ARBEL_GRAPHICS_REVISED.DOCX (DO NOT DELETE) 1/30/20 11:10 AM 1286 WAKE FOREST LAW REVIEW [Vol. 54 extreme, and integrity bias. As a result, peer-to-peer reputational information tends to provide a false sense of the true quality of the underlying product. While consumers can try to account for these distortions, many will lack the requisite sophistication, and even consumers who do account for the distortions might not be able to do so given the potentially corrupting effect of the distortions. This is not to say that distortions are always strong or that consumer heuristics are not helpful. Still, reputation failures have important normative implications which I now move to...


claim: Introducing "Reputation-by-Regulation" and Addressing Platform Issues: law can actively design rules ex ante to make market information more reliable and abundant through "Reputation-by-Regulation," where legal institutions influence reputation. While platforms like Amazon act as metaregulators, their policing is limited by contractual reliance and conflicts of interest. Platforms may lack incentives to act in the public interest, potentially manipulating markets or censoring reviews (as alleged against Uber, Yelp, Amazon), a problem worsened by court rulings granting them broad curatorial discretion over user-generated content.

evidence_quote: [p. 52] W03_ARBEL_GRAPHICS_REVISED.DOCX (DO NOT DELETE) 1/30/20 11:10 AM 1290 WAKE FOREST LAW REVIEW [Vol. 54 To the extent that such systems work, they are desirable and helpful. But reputational platforms are also limited in their policing powers. For the most part, platforms only rely on contractual agreements between themselves, sellers, and buyers.266 Thus, their ability to investigate and sanction fake reviews is very limited. Platforms also risk harmful public relations implications if they take actions that consumers deem too aggressive.267 Moreover, platforms’ ability to correct consumer misstatements, investigate cherrypicking, or validate information is also limited. There is...