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On Reputational Rents as an Incentive Mechanism in Competitive Markets

Author

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  • Bernardita Vial

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

  • Felipe Zurita.

Abstract

This paper shows that more intense competition may improve, rather than hamper, the chances that a market for an experience good or service overcomes the problems caused by informational asymmetries. This, in spite of the fact that intensified competition diminishes the reputational rents that -allegedly- provide the incentives for the production of high quality. Our results show that instead, these incentives are created by price differentials not levels.

Suggested Citation

  • Bernardita Vial & Felipe Zurita., 2009. "On Reputational Rents as an Incentive Mechanism in Competitive Markets," Documentos de Trabajo 354, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:354
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-354.pdf
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    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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