Endogenous Quality in Social Learning

Georgy Lukyanov, Konstantin Shamruk and Ekaterina Logina

No 25-1680, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study a dynamic reputation model with a fixed posted price where only pur-chases are public. A long-lived seller chooses costly quality; each buyer observes the purchase history and a private signal. Under a Markov selection, beliefs split into two cascades—where actions are unresponsive and investment is zero—and an interior region where the seller invests. The policy is inverse-U in reputation and produces two patterns: Early Resolution (rapid absorption at the optimistic cascade) and Dou-ble Hump (two investment episodes). Higher signal precision at fixed prices enlarges cascades and can reduce investment. We compare welfare and analyze two design levers: flexible pricing, which can keep actions informative and remove cascades for patient sellers, and public outcome disclosure, which makes purchases more informa-tive and expands investment.

Keywords: Reputation; Social learning; Informational cascades; Product quality; Dynamic games. (search for similar items in EconPapers)
JEL-codes: C73 D82 D83 L15 (search for similar items in EconPapers)
Date: 2025-10
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131019

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