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Information value and externalities in reputation building

  • Bolton, Gary E.
  • Ockenfels, Axel
  • Ebeling, Felix

In sequential equilibrium theory, reputation building is independent of whether the reputation builder is matched with one long-run partner or a series of short-run "strangers". We observe, however, that reputation builders are significantly more challenged by long-run players in both laboratory chain store and buyer-seller games. Reputation builder behavior is more predictable than implied by equilibrium, and so reputation information has more economic value than implied by equilibrium. For short-run players, this reputation information value is an externality. For long-run players, the value of the information is internalized and so they have greater incentive to challenge the reputation builder.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 23-33

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:23-33
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