Years ago, Tyler Cowen and Sam Papenfuss wrote an article explaining why there are not-for-profit firms such as colleges/universities, charitable organizations, and ratings agencies for goods and services. They concluded that the not-for-profit status is for signaling reputation for honesty. For example, having to serve shareholders' interests by earning profits would jeopardize the objectivity of the information provided by Consumer Reports if this consumer ratings company acted as a for-profit enterprise, which it does not.
A class action lawsuit has recently been filed against Yelp, an online for-profit company that rates, and provides direct information from customers about, firms (i.e., restaurants, hotels, vets, etc.) in specific geographical locations. The plaintiff alleges that a salesperson of this provider of information - good and bad - attempted to extort its business, which had received unfavorable information and ratings on Yelp's website.
"The plaintiff...asked that Yelp remove a false and defamatory review from the Web site," a release from the law firms alleges. "In response, as set forth in the lawsuit, Yelp refused to take down the review. Instead, the company's sales representatives repeatedly contacted the hospital and demanded a roughly $300 per-month payment in exchange for hiding or removing the negative review." That payment is "in the guise of 'advertising contracts,'" the release explained.
First, this is simply an allegation, which will have to go through trial to prove if the accusation is valid. More importantly, this may be an example of a principal-agent problem. If the salesperson is paid on commission, it could simply be a rogue employee out to increase his or her commission by increasing advertising sales using tactics that do not comply with Yelp's "official" policy.
This still does not exonerate the ratings company, but if it turns out that such tactics were encouraged by Yelp, it will be a tough road to regain its reputation as an objective source of information.
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