Competition, Reputation and Cheating

Vanin, Paolo (2009) Competition, Reputation and Cheating. Bologna: Dipartimento di Scienze economiche DSE, p. 35. DOI 10.6092/unibo/amsacta/4561. In: Quaderni - Working Paper DSE (683). ISSN 2282-6483.
Full text available as:
[img]
Preview
PDF
License: Creative Commons Attribution Non-commercial

Download (279kB) | Preview

Abstract

Under repeated market interaction, reputation and competition may drive out of the market those firms that do not comply with their quality promises. One may thus presume that competitive pressure improves average market quality. This paper shows that the opposite may be true in an endogenous entry, repeated interaction, linear demand oligopoly model, in which introductory prices may be used as quality signals. Cheating firms may enter the market, fool even rational consumers, and exit the market when discovered, implying a failure of the basic reputation mechanism and an increasing time path of prices. Markets for closer substitutes tend to have a lower initial average quality and less trusting consumers, whereas the number of competitors has no clear relationship with average quality.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Vanin, Paolo
Keywords
Oligopoly, Quality, Price Signals, Consumers' Trust
Subjects
ISSN
2282-6483
DOI
Deposit date
05 Feb 2016 11:27
Last modified
05 Feb 2016 11:27
URI

Other metadata

Downloads

Downloads

Staff only: View the document

^