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Reciprocity, Social Ties, and Competition in Markets for Experience Goods

  • Steffen Huck

    (University College London)

  • Jean-Robert Tyran

    (Institute of Economics, University of Copenhagen)

Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) firms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce firms to provide good quality which, in turn, may induce a positive externality for nonreciprocal customers who would, in the absence of reciprocal types, face market breakdown. This efficiency-enhancing effect of reciprocity is boosted when there are social ties between consumers and competition between firms. The existence of social ties or competition alone does not improve market performance.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-12.

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Length: 21 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:kud:kuiedp:0412
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