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Sustainable Reputations with Rating Systems

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  • Mehmet Ekmekci

Abstract

In a product choice game played between a long lived seller and an infnite sequence of buyers, we assume that buyers cannot observe past signals. To facilitate the analysis of applications such as online auctions (e.g. eBay), online shopping search engines (e.g. BizRate.com) and consumer reports, we assume that a central mechanism observes all past signals, and makes public announcements every period. The set of announcements and the mapping from observed signals to the set of announcements is called a rating system. We show that, absent reputation effects, information censoring cannot improve attainable payoffs. However, if there is an initial probability that the seller is a commitment type that plays a particular strategy every period, then there exists a finite rating system and an equilibrium of the resulting game such that, the expected present discounted payoff of the seller is almost his Stackelberg payoff after every history. This is in contrast to Cripps, Mailath and Samuelson (2004), where it is shown that reputation effects do not last forever in such games if buyers can observe all past signals. We also construct .nite rating systems that increase payoffs of almost all buyers, while decreasing the seller’s payoff.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1505.

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Date of creation: 01 Mar 2010
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Handle: RePEc:nwu:cmsems:1505

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Related research

Keywords: Reputations; Rating Systems; Online Reputation Mechanisms; Disappearing Reputations; Permanent Reputations. JEL Classification Numbers: D82;

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References

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  1. Michihiro Kandori & Ichiro Obara, 2006. "Less is more: an observability paradox in repeated games," International Journal of Game Theory, Springer, vol. 34(4), pages 475-493, November.
  2. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 231-251, 04.
  3. Cripps,M.W. & Mailath,G.J. & Samuelson,L., 2002. "Imperfect monitoring and impermanent reputations," Working papers 17, Wisconsin Madison - Social Systems.
  4. Liu, Qingmin & Skrzypacz, Andrzej, 2009. "Limited Records and Reputation," Research Papers 2030, Stanford University, Graduate School of Business.
  5. Kandori, Michihiro, 1992. "The Use of Information in Repeated Games with Imperfect Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 581-93, July.
  6. Wiseman, Thomas, 2008. "Reputation and impermanent types," Games and Economic Behavior, Elsevier, vol. 62(1), pages 190-210, January.
  7. Bakos, Yannis & Dellarocas, Chrysanthos, 2003. "Cooperation Without Enforcement? A comparative analysis of litigation and online reputation as quality assurance mechanisms," Working papers 4295-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  8. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Aperjis, Christina & Miao, Yali & Zeckhauser, Richard J., 2011. "Variable Temptations and Black Market Reputations," Working Paper Series 11-020, Harvard University, John F. Kennedy School of Government.
  2. Andrew Mell, 2011. "Re-Thinking Reputation," Economics Series Working Papers 565, University of Oxford, Department of Economics.
  3. Bernardita Vial & Felipe Zurita, 2013. "Reputation-Driven Industry Dynamics," Documentos de Trabajo 436, Instituto de Economia. Pontificia Universidad Católica de Chile..
  4. Heski Bar-Isaac & Joyee Deb, 2012. "Reputation for a Servant of Two Masters," Working Papers 12-08, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. 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.
  6. Qingmin Liu, 2006. "Information Acquisition and Reputation Dynamics," Discussion Papers 06-030, Stanford Institute for Economic Policy Research.
  7. Bernardita Vial & Felipe Zurita, 2013. "Incentives and Reputation when Names can be Replaced: Valjean Reinvented as Monsieur Madeleine," Documentos de Trabajo 447, Instituto de Economia. Pontificia Universidad Católica de Chile..
  8. Margherita Bottero & Giancarlo Spagnolo, 2013. "Limited credit records and market outcomes," Temi di discussione (Economic working papers) 903, Bank of Italy, Economic Research and International Relations Area.
  9. Doraszelski, Ulrich & Escobar, Juan F., 2012. "Restricted feedback in long term relationships," Journal of Economic Theory, Elsevier, vol. 147(1), pages 142-161.
  10. Thomas Wiseman, 2006. "Reputation and Impermanent Types," 2006 Meeting Papers 650, Society for Economic Dynamics.
  11. Monte, Daniel, 2013. "Bounded memory and permanent reputations," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 345-354.

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