Reputation and Turnover

Rafael Rob () and Tadashi Sekiguchi
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Rafael Rob: Department of Economics, University of Pennsylvania
Authors registered in the RePEc Author Service: Rafael Robb

No 594, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We consider a repeated duopoly game where each firm privately chooses its investment in quality, and realized quality is a noisy indicator of the firm's investment. We focus on dynamic reputation equilibria, whereby consumers "discipline" a firm by switching to its rival in the case that the realized quality of its product is too low. This type of equilibrium is characterized by consumers' tolerance level - the level of product quality below which consumers switch to the rival firm - and firms' investment in quality. Given consumers' tolerance level, we determine when a dynamic equilibrium that gives higher welfare than the static equilibrium exists. We also derive comparative statics properties, and characterize a set of investment levels and, hence, payoffs that our equilibria sustain.

Keywords: Reputation; consumer switching; moral hazard; repeated games (search for similar items in EconPapers)
JEL-codes: C73 D82 L14 L15 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-08
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Citations: View citations in EconPapers (1)

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Journal Article: Reputation and turnover (2006)
Working Paper: Reputation and Turnover (2004)
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