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Reputation and impermanent types

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  • Wiseman, Thomas

Abstract

I consider a version of the chain store game where the incumbent firm’s type evolves according to a Markov process with two states: a “tough†type who always fights entry, and a “weak†type who prefers to accommodate. There exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough. Above that level, as the number of markets T increases, in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence. When T is infinite, then regardless of the discount factor there exists a sequential equilibrium in which the incumbent’s payoff is bounded below her Stackelberg payoff. Both results are in contrast to the outcome when the incumbent’s type is fixed. One interpretation is that reputation is not permanent, but must be renewed occasionally

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 62 (2008)
Issue (Month): 1 (January)
Pages: 190-210

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Handle: RePEc:eee:gamebe:v:62:y:2008:i:1:p:190-210

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Web page: http://www.elsevier.com/locate/inca/622836

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References

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  1. Drew Fudenberg & David Levine, 1987. "Reputation and Equilibrium Selection in Games With a Patient Player," Working papers 461, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 415-41, April.
  3. Martin Cripps & George J Mailath & Larry Samuelson, 2010. "Imperfect Monitoring and Impermanent Reputations," Levine's Working Paper Archive 618897000000000060, David K. Levine.
  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  5. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation? Erratum," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 714, July.
  6. Fudenberg, Drew & Levine, David K, 1992. "Maintaining a Reputation When Strategies Are Imperfectly Observed," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 561-79, July.
  7. Susan Athey & Kyle Bagwell, 2004. "Collusion with persistent cost shocks," Discussion Papers 0405-07, Columbia University, Department of Economics.
  8. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  9. Harold L. Cole & James Dow & William B. English, 1994. "Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt," Staff Report 180, Federal Reserve Bank of Minneapolis.
  10. Ehud Kalai & Ehud Lehrer, 1990. "Rational Learning Leads to Nash Equilibrium," Discussion Papers 895, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Martin W. Cripps & George J. Mailath & Larry Samuelson, 2004. "Disappearing Private Reputations in Long-Run Relationships," PIER Working Paper Archive 04-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
  13. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
  15. Aoyagi, Masaki, 1996. "Reputation and Entry Deterrence under Short-Run Ownership of a Firm," Journal of Economic Theory, Elsevier, vol. 69(2), pages 411-430, May.
  16. Ekmekci, Mehmet, 2011. "Sustainable reputations with rating systems," Journal of Economic Theory, Elsevier, vol. 146(2), pages 479-503, March.
  17. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
  18. Steven Tadelis, 2003. "Firm reputation with hidden information," Economic Theory, Springer, vol. 21(2), pages 635-651, 03.
  19. Phelan, Christopher, 2006. "Public trust and government betrayal," Journal of Economic Theory, Elsevier, vol. 130(1), pages 27-43, September.
  20. Pitchik Carolyn, 1993. "Commitment, Reputation, and Entry Deterrence," Games and Economic Behavior, Elsevier, vol. 5(2), pages 268-287, April.
  21. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Monte, Daniel, 2013. "Bounded memory and permanent reputations," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 345-354.
  2. Ekmekci, Mehmet, 2011. "Sustainable reputations with rating systems," Journal of Economic Theory, Elsevier, vol. 146(2), pages 479-503, March.
  3. Mehmet Ekmekci & Olivier Gossner & Andrea Wilson, 2010. "Impermanent Types and Permanent Reputations," Discussion Papers 1511, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Johannes Horner & Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2009. "On a Markov Game with One-Sided Incomplete Information," Cowles Foundation Discussion Papers 1737, Cowles Foundation for Research in Economics, Yale University.
  5. Daron Acemoglu & Alexander Wolitzky, 2012. "Cycles of Distrust: An Economic Model," Levine's Working Paper Archive 786969000000000502, David K. Levine.
  6. Alp E. Atakan & Mehmet Ekmekci, 2012. "Reputation in Long-Run Relationships," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 451-480.
  7. Renault, Jerome & Solan, Eilon & Vieille, Nicolas, 2012. "Dynamic Sender-Receiver Games," Les Cahiers de Recherche 966, HEC Paris.

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