New, Like New, or Very Good? Reputation and Credibility

Jullien, Bruno and Park, In-Uck (2014) New, Like New, or Very Good? Reputation and Credibility. Review of Economic Studies, vol. 81 (n° 4). pp. 1543-1574.

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Official URL: http://tse-fr.eu/pub/28816

Abstract

We show that sellers may earn reputation for their “ability” to deliver high quality goods on average by honestly announcing the realised quality of items for sale every period. As the expected revenue stream from continuing with honest communication increases with their ability, high ability sellers remain honest while low ability sellers find it too costly and sometimes lie about quality for short-term gain. Thus, cheap-talk communication facilitates the market’s learning of a seller’s ability and strengthens reputation effects. We study this new reputation mechanism and the induced market dynamics, first when sellers cannot restart with a new identity and then when they can. We extend the analysis to various other situations such as voluntary refund and moral hazard.

Item Type: Article
Language: English
Date: March 2014
Refereed: Yes
JEL codes: C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
D82 - Asymmetric and Private Information
D83 - Search; Learning; Information and Knowledge; Communication; Belief
L14 - Transactional Relationships; Contracts and Reputation; Networks
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:53
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28816
URI: http://publications.ut-capitole.fr/id/eprint/16640

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