Competition and Reputation
AbstractIn this paper we analyze the interaction of two disciplinary mechanisms: competition and reputation. We first study a dynamic model of monopolistic competition with experienced goods (i.e., quality is observed after goods are purchased). When market power is high enough, reputation results in the equilibrium with perfect information being sustainable. If consumers' expectations satisfy a weak regularity condition, then there is a unique sequential equilibrium with quality goods being produced and the price has a mark-up which is either the full information monopolistic mark-up or, if this is not sustainable (e.g., when goods are very close substitutes), the rate of time preference, that acts as a reputation constraint. A variation of the model allows us to study the private provision of currencies. In particular, we inquire whether Bertrand competition between profit maximizing currency issuers would drive inflation rates to the efficient outcome, as suggested prominently by Hayek. We show that, unless firms can commit to future actions, the efficient outcome is never attained. Without full commitment, equilibria with deflation -as implied by the Friedman rule- can not be sustained, however, if currencies are close substitutes (and beliefs regular) the equilibrium inflation rate is zero.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1384.
Date of creation: 01 Aug 2000
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- D10 - Microeconomics - - Household Behavior - - - General
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- Ramon Marimon, 2000. "Review of Sargent's The Conquest of American Inflation," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 405-411, June.
- Ramon Marimon & Juan Pablo Nicolini & Pedro Teles, 2003.
"Inside-outside money competition,"
Working Paper Series
WP-03-09, Federal Reserve Bank of Chicago.
- Juan Pablo Nicolini & Ramon Marimon & Pedro Teles, 2001. "Inside Outside Money Competition," Department of Economics Working Papers 004, Universidad Torcuato Di Tella.
- Marimon, Ramon & Nicolini, Juan Pablo & Teles, Pedro, 2003. "Inside-Outside Money Competition," CEPR Discussion Papers 4039, C.E.P.R. Discussion Papers.
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