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Competitive Equilibrium and Reputation under Imperfect Public Monitoring

Author

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  • Bernardita Vial

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

In this paper we analyze a reputation-based mechanism that sustains the provision of high quality in a market for an experience good. In contrast to existing models of reputation, however, we consider a competitive market: there is a continuum of firms, each serving at most one consumer each period. We assume a perpetual probability of type replacement and imperfect public monitoring, and we analyze the evolution of firms' reputations in the high quality equilibrium. We find that there is an invariant long run distribution of firms' reputations: each firm's reputation changes every period even in the long run, but the population distribution of reputations remains constant. We consider the long run distribution of firms' reputations to further characterize the steady-state high quality equilibrium. In the equilibrium of the stage game firms with a higher reputation charge a higher price. Furthermore, we show that if the cost of high quality is decreasing in some consumer's characteristic, then buyers pay personalized prices in equilibrium.

Suggested Citation

  • Bernardita Vial, 2008. "Competitive Equilibrium and Reputation under Imperfect Public Monitoring," Documentos de Trabajo 327, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:327
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    File URL: http://www.economia.uc.cl/docs/dt_327.pdf
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    References listed on IDEAS

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    1. George J. Mailath & Larry Samuelson, "undated". "Your Reputation Is Who You're Not, Not Who You'd Like To Be," Penn CARESS Working Papers bb1b279d6539c9ed3b83a027c, Penn Economics Department.
    2. Larry Samuelson & Andrew Postlewaite & George Mailath, 2007. "Pricing in Matching Markets," 2007 Meeting Papers 531, Society for Economic Dynamics.
    3. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July.
    4. Martin W. Cripps & George J. Mailath & Larry Samuelson, 2004. "Imperfect Monitoring and Impermanent Reputations," Econometrica, Econometric Society, vol. 72(2), pages 407-432, March.
    5. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
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    Cited by:

    1. Ekmekci, Mehmet & Gossner, Olivier & Wilson, Andrea, 2012. "Impermanent types and permanent reputations," Journal of Economic Theory, Elsevier, vol. 147(1), pages 162-178.
    2. Villatoro, Félix, 2009. "The delegated portfolio management problem: Reputation and herding," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2062-2069, November.
    3. Christian Ferreda & Matías Tapia, 2010. "Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital," Documentos de Trabajo 390, Instituto de Economia. Pontificia Universidad Católica de Chile..

    More about this item

    Keywords

    reputation; incomplete information; perfect competition; general equilibrium;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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