Can Warranties Substitute for Reputations?

James W. Roberts

American Economic Journal: Microeconomics, 2011, vol. 3, issue 3, 69-85

Abstract: In markets where product quality is imperfectly observed or delivery is uncertain, seller reputations and product guarantees or warranties can impact equilibrium prices and quantities. Using data from a decentralized online market, this paper empirically investigates the substitutability of product guarantees for seller reputation. I find that a "guaranteed or your money back" promise from the market maker does not substitute for reputation, either in determining price or the probability of sale. The most likely causes of the policy's ineffectiveness are delays in buyer response to the guarantee and skepticism about reimbursement in the event of fraud. (JEL D82, L14, L15, L81, M31)

JEL-codes: D82 L14 L15 L81 M31 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mic.3.3.69
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Citations: View citations in EconPapers (15)

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