Reciprocity, Social Ties, and Competition in Markets for Experience Goods

Steffen Huck and Jean-Robert Tyran ()

No 04-12, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) firms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce firms to provide good quality which, in turn, may induce a positive externality for nonreciprocal customers who would, in the absence of reciprocal types, face market breakdown. This efficiency-enhancing effect of reciprocity is boosted when there are social ties between consumers and competition between firms. The existence of social ties or competition alone does not improve market performance.

Keywords: social networks; reputation; reciprocity; experience goods; customer loyalty (search for similar items in EconPapers)
JEL-codes: D43 L14 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-evo and nep-net
Date: 2004-07
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Journal Article: Reciprocity, social ties, and competition in markets for experience goods (2007)
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