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Competition and Reputation

Juan Pablo Nicolini, Ramon Marimon and Pedro Teles

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: We study the interaction of competition and reputation as efficiency enhancing mechanisms in environments where informational or lack of commitment constraints affect the ability of firms to compete for market shares. We first analyze a dynamic model of monopolistic competition with experience goods. If beliefs satisfy a minimal regularity condition, there is a unique equilibrium with quality goods being produced and the price has a mark-up which is either the full information monopolistic mark-up or, if this is not sustainable (e.g., when goods are very close substitutes), the rate of time preference, that acts as a reputation constraint. A variation of the model allows us to analyze the private provision of currencies. We show that if suppliers of currency decide their actions sequentially, and beliefs satisfy the regularity condition, the equilibrium exhibits a zero inflation rate, so that the efficient outcome is not achieved.

Pages: 37 pages
Date: 2000-08
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Competition and Reputation (1999)
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