Design of product quality scales for conveying information by infomediaries

Infomediaries, such as movie critics, often evaluate product quality using discrete grades, such as thumbs-up and thumbs-down. Their reports are used by potential consumers to decide whether to purchase the product. Our aim is to examine how the grading can be improved by answering research questions such as: What is the quality cutoff for each grade? How many grades should the grading scale use? How should grading be done for other goals than informativeness, such as maximizing reviewer’s traffic? How should grading be done to encourage producers to improve quality? Using an analytical model, we show that optimal grade cutoffs depend on the distributions of product quality and consumer taste, and the resulting scale may have unequal intervals. As few as five grades can be near-optimal for consumer welfare and grades should be made more difficult to achieve when producers can invest in quality improvement. These results should help improve the design of scales for reporting quality.