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Reputation and impermanent types

Listed author(s):
  • Wiseman, Thomas

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

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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
  2. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
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  8. Drew Fudenberg & David K. Levine, 1992. "Maintaining a Reputation when Strategies are Imperfectly Observed," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 561-579.
  9. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
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  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.
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  18. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  19. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
  20. Pitchik Carolyn, 1993. "Commitment, Reputation, and Entry Deterrence," Games and Economic Behavior, Elsevier, vol. 5(2), pages 268-287, April.
  21. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
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