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Reputation and Product Quality

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Author Info
William P. Rogerson
Abstract

This article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied customers who leave and word-of-mouth advertising results in more arrivals. Second, higher fixed costs can result in a higher equilibrium level of quality. Third, the particular form that word-of-mouth advertising takes can have significant effects on the market outcome. Recommendations consisting of a report of whether the consumer intends to patronize the same firm again generate an externality that is absent when actual estimates of quality are communicated.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
Pages: 508-516
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Handle: RePEc:rje:bellje:v:14:y:1983:i:autumn:p:508-516

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  1. Siddhartha Bandyopadhyay, 2004. "Endogenous Market Thickness and Honesty : A Quality Trap Model," Industrial Organization 0408006, EconWPA. [Downloadable!]
  2. Roberta Sestini, 2002. "Are You A Doctor Or A Quack? Provision Of Quality And Self-Regulation In A Market For Professional Services," Departmental Working Papers 167, Tor Vergata University, CEIS. [Downloadable!]
  3. William P. Rogerson, 1986. "Advertising as a Signal When Price Guarantees Quality," Discussion Papers 704, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Rafael Rob, 2004. "Is Bigger Better? Investing in Reputation," Theory workshop papers 658612000000000086, UCLA Department of Economics. [Downloadable!]
  5. Siddhartha Bandyopadhyay, 2005. "Endogenous Market Thickness, Prices and Honesty: Quality Demand Traps," Discussion Papers 05-02, Department of Economics, University of Birmingham. [Downloadable!]
  6. Steven Kaplan & Pamela Roush & Linda Thorne, 2007. "Andersen and the Market for Lemons in Audit Reports," Journal of Business Ethics, Springer, vol. 70(4), pages 363-373, February. [Downloadable!] (restricted)
  7. James D. Dana, 2000. "Competition in Price and Availability when Availability is Unobservable," Econometric Society World Congress 2000 Contributed Papers 1450, Econometric Society. [Downloadable!]
    Other versions:
  8. Johannes Hörner, . ""Reputation and Competition''," CARESS Working Papres 99-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
  9. Jean Gabszewicz & Filomena Garcia, 2007. "Optimal Monopoly Price Paths with Expanding Networks," Review of Network Economics, Concept Economics, vol. 6(1), pages 42-49, March. [Downloadable!]
  10. W. Bentley MacLeod, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," IZA Discussion Papers 1978, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. William P. Rogerson, 1985. "Price Advertising and the Deterioration of Product Quality," Discussion Papers 707, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  12. Eric Rasmusen, 2008. "Quality-Ensuring Profits," Working Papers 2008-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  13. Morris M. Kleiner & Richard M. Todd, 2007. "Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers," NBER Working Papers 13684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Theodore Loder & Marshall Van Alstyne & Rick Wash, 2006. "An Economic Response to Unsolicited Communication," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(1), pages 1322-1322. [Downloadable!] (restricted)
  15. Jean J., GABSZEWICZ & Filomena, GARCIA, 2005. "A Note on Expanding Networks and Monopoly Pricing," Discussion Papers (ECON - Département des Sciences Economiques) 2005063, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  16. Gilles Grolleau & Julie A. Caswell, 2005. "Interaction Between Food Attributes in Markets: The Case of Environmental Labeling," Working Papers 2005-5, University of Massachusetts Amherst, Department of Resource Economics. [Downloadable!]
    Other versions:
  17. Michael Waldman, 1984. "The Role of Integrity in Economic Interaction," UCLA Economics Working Papers 350, UCLA Department of Economics. [Downloadable!]
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