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New, Like New, or Very Good? Reputation and Credibility

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  • Jullien, Bruno
  • Park, In-Uck

Abstract

We show that sellers may earn reputation for their \ability" to deliver high quality goods on average by honestly announcing the realised quality of items for sale every period. As the expected revenue stream from continuing with honest communication increases with their ability, high ability sellers remain honest while low ability sellers find it too costly and sometimes lie about quality for short-term gain. Thus, cheap-talk communication facilitates the market's learning of a seller's ability and strengthens reputation effects. We study this new reputation mechanism and the induced market dynamics, first when sellers cannot restart with a new identity and then when they can. We extend the analysis to various other situations such as voluntary refund and moral hazard.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 564.

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Date of creation: Jul 2009
Date of revision: 27 Jan 2014
Handle: RePEc:ide:wpaper:21001

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  1. Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers 19, Princeton, Woodrow Wilson School - Discussion Paper.
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  4. George J. Mailath & Larry Samuelson, 2000. "Who Wants a Good Reputation?," CARESS Working Papres sell-rep, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. Jullien, Bruno & Park, In-Uck, 2009. "Seller Reputation and Trust in Pre-Trade Communication," TSE Working Papers 09-086, Toulouse School of Economics (TSE), revised Apr 2013.
  6. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
  7. Jeffrey C. Ely & Juuso Valimaki, 2002. "Bad Reputation," Discussion Papers 1348, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  11. Dellarocas, Chrysanthos, 2003. "The Digitization of Word-of-mouth: Promise and Challenges of Online Feedback Mechanisms," Working papers 4296-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Chrysanthos Dellarocas, 2003. "The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms," Management Science, INFORMS, vol. 49(10), pages 1407-1424, October.
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  15. Andrew McLennan & In-Uck Park, 2003. "The Market for Liars: Reputation and Auditor Honesty," ISER Discussion Paper 0587, Institute of Social and Economic Research, Osaka University.
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  18. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  19. In-Uck Park, 2005. "Cheap-Talk Referrals of Differentiated Experts in Repeated Relationships," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 391-411, Summer.
  20. Melnik, Mikhail I & Alm, James, 2002. "Does a Seller's Ecommerce Reputation Matter? Evidence from eBay Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 337-49, September.
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  22. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
  23. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
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  25. repec:rje:randje:v:37:y:2006:1:p:155-175 is not listed on IDEAS
  26. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
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Cited by:
  1. Bruno Jullien & In-Uck Park, 2009. "Seller Reputation and Trust in Pre-Trade Communication," Levine's Working Paper Archive 814577000000000330, David K. Levine.
  2. Timo Heinrich, 2011. "Communication and Reputation in Procurement Auctions – Some Empirical Evidence," Ruhr Economic Papers 0253, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Saak, Alexander E., 2013. "Traceability and Reputation in Supply Chains," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149988, Agricultural and Applied Economics Association.

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