IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Market Institutions and Quality Enforcement

  • Rudolf Kerschbamer

    (University of Vienna)

  • Muriel Niederle

    (Harvard University)

  • Josef Perktold

    (University of Chicago)

A competitive market for an experience good is considered where high quality is enforced by repeated game trigger strategies. The goods are demanded by long run (LR) and short run (SR) customers, the former buying repeatedly, the latter only once. SR buyers can free ride on quality enforcement by LR buyers but, by doing so, they may prevent LR buyers from punishing firms for producing low quality. We characterize equilibria in different market institutions and show that non-exclusivity has a negative impact on quality enforcement when the market institution provides some public information. In decentralized markets with only match specific information, some firms sell high quality to LR, others low quality to SR buyers. By contrast, in auction markets where past trading prices and quantities are publicly observed, SR buyers can buy from firms with high price histories. When a firm starts to produce low quality, its LR customers migrate to other firms but the punishment probability is lowerd by sales to SR buyers. A partial market breakdown results. The outcome can be improved by coordination among LR buyers, which allows a better use of information. Auction markets with a larger information flow, produce high punishment probabilities even without coordination. Better outcomes can be obtained if firms are allowed to price discriminate between LR and SR buyers. Without discrimination or exclusivity, information spillovers from LR to SR can reduce welfare. Depending on the market institution, more public information can improve the outcome but can also make it worse.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://fmwww.bc.edu/RePEc/es2000/1482.pdf
File Function: main text
Download Restriction: no

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1482.

as
in new window

Length:
Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:ecm:wc2000:1482
Contact details of provider: Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Michael Peters, 1995. "Decentralized Markets and Endogenous Institutions," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 227-60, May.
  2. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 2058, David K. Levine.
  3. Kathryn Graddy, 1995. "Testing for Imperfect Competition at the Fulton Fish Market," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 75-92, Spring.
  4. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  5. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  6. Weisbuch, G. & Kirman, A.P. & Herreiner, D., 1996. "Market Organisation," G.R.E.Q.A.M. 96a20, Universite Aix-Marseille III.
  7. Piccione, Michele & Tan, Guofu, 1996. "A Simple Model of Expert and Non-Expert Bidding in First-Price Auctions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 501-515, August.
  8. Radner, Roy, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 43-57, January.
  9. Fudenberg, D. & Levine, D.K., 1989. "An Approximative Folk Theorem With Imperfect Private Information," Working papers 525, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Geertz, Clifford, 1978. "The Bazaar Economy: Information and Search in Peasant Marketing," American Economic Review, American Economic Association, vol. 68(2), pages 28-32, May.
  11. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  12. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  13. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  14. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June.
  15. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  16. Levine, David K. & Martinelli, Cesar, 1998. "Reputation with Noisy Precommitment," Journal of Economic Theory, Elsevier, vol. 78(1), pages 55-75, January.
  17. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  18. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
  19. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  20. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  21. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
  22. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-80, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1482. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.