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Simple Reputation Systems

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  • John Kennes
  • Aaron Schiff

Abstract

We develop a model of simple “reputation systems” that monitor and publish information about the behavior of sellers in a search market with asymmetric information. The reputations created influence the equilibrium search patterns of buyers and thus provide for market‐based “punishment” of bad behavior. We show that a reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type. However, the same system can be prone to strategic manipulation by sellers who always have low‐quality products. In that case, we show that an alternative system which assigns reputations based on product quality rather than honesty can be superior.

Suggested Citation

  • John Kennes & Aaron Schiff, 2007. "Simple Reputation Systems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 71-91, March.
    • Handle: RePEc:bla:scandj:v:109:y:2007:i:1:p:71-91
    DOI: 10.1111/j.1467-9442.2007.00481.x
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    Cited by:

    1. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    2. Kennes, John & Schiff, Aaron, 2008. "Quality infomediation in search markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1191-1202, September.
    3. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
    4. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    5. Miklós-Thal, Jeanine & Schumacher, Heiner, 2013. "The value of recommendations," Games and Economic Behavior, Elsevier, vol. 79(C), pages 132-147.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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