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New, Like New, or Very Good? Reputation and Credibility

  • Jullien, Bruno
  • Park, In-Uck

We show that sellers may earn reputation for their \ability" to deliver high quality goods on average by honestly announcing the realised quality of items for sale every period. As the expected revenue stream from continuing with honest communication increases with their ability, high ability sellers remain honest while low ability sellers find it too costly and sometimes lie about quality for short-term gain. Thus, cheap-talk communication facilitates the market's learning of a seller's ability and strengthens reputation effects. We study this new reputation mechanism and the induced market dynamics, first when sellers cannot restart with a new identity and then when they can. We extend the analysis to various other situations such as voluntary refund and moral hazard.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 564.

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Date of creation: Jul 2009
Date of revision: 27 Jan 2014
Publication status: Published in The Review of Economic Studies, vol.�81, n°4, mars 2014, p.�1543-1574.
Handle: RePEc:ide:wpaper:21001
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  1. repec:rje:randje:v:37:y:2006:i:4:p:983-1005 is not listed on IDEAS
  2. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  3. Atkeson, Andrew & Hellwig, Christian & Ordoñez, Guillermo, 2014. "Optimal Regulation in the Presence of Reputation Concerns," CEPR Discussion Papers 10080, C.E.P.R. Discussion Papers.
  4. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
  5. Guillermo Ordonez & Andrew Atkeson, 2009. "Optimal Regulation in the Presence of Reputation Concerns," 2009 Meeting Papers 830, Society for Economic Dynamics.
  6. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  7. Moritz Meyer-ter-Vehn & Simon Board, 2009. "Reputation for Quality," 2009 Meeting Papers 160, Society for Economic Dynamics.
  8. Ginger Zhe Jin & Andrew Kato, 2006. "Price, quality, and reputation: evidence from an online field experiment," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 983-1005, December.
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