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Word-of-Mouth Communication and Community Enforcement

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  • Ahn, Illtae
  • Suominen, Matti

Abstract

We study a repeated game where a seller, who has a short-term incentive to supply low quality, is periodically matched with a randomly selected buyer. Buyers observe only the outcomes of their neighbors' games and may receive signals from them. When the buyer population is large, the seller may sell high quality even when each buyer observes her action in any given period with an arbitrarily small probability. When networking among buyers is costly, low quality is always supplied with a positive probability. For this case, we characterize an equilibrium where the seller randomizes between high and low quality.

Suggested Citation

  • Ahn, Illtae & Suominen, Matti, 2001. "Word-of-Mouth Communication and Community Enforcement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 399-415, May.
  • Handle: RePEc:ier:iecrev:v:42:y:2001:i:2:p:399-415
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    Cited by:

    1. Lippert, Steffen & Spagnolo, Giancarlo, 2011. "Networks of relations and Word-of-Mouth Communication," Games and Economic Behavior, Elsevier, vol. 72(1), pages 202-217, May.
    2. Felipe Balmaceda & Juan Esconar, 2013. "Trust in Cohesive Communities," Documentos de Trabajo 295, Centro de Economía Aplicada, Universidad de Chile.
    3. Eleonora Patacchini & Edoardo Rainone, 2017. "Social ties and the demand for financial services," Temi di discussione (Economic working papers) 1115, Bank of Italy, Economic Research and International Relations Area.
    4. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2007. "Social Memory and Evidence from the Past," Levine's Bibliography 321307000000000850, UCLA Department of Economics.
    5. Bose Gautam, 2010. "The Fragmentation of Reputation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-36, April.
    6. repec:kap:jfsres:v:52:y:2017:i:1:d:10.1007_s10693-017-0279-0 is not listed on IDEAS
    7. Zakaria Babutsidze & Robin Cowan, 2014. "Showing or telling? Local interaction and organization of behavior," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(2), pages 151-181, October.
    8. Luciana C Moscoso Boedo & Antonio Jimenez-Martinez, 2015. "Identifying defectors in a population with short-run players," Economics Bulletin, AccessEcon, vol. 35(2), pages 1392-1403.

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