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Simple Reputation Systems

Author

Listed:
  • John Kennes

    (Department of Economics, University of Copenhagen)

  • Aaron Schiff

    (Department of Economics, University of Auckland)

Abstract

This paper develops a model of simple 'reputation systems' that monitor and publish information about the behavior of sellers in a market with search frictions and asymmetric information. The reputations created by these systems influence the equilibrium search patterns of buyers and thus provide for market-based 'punishment' of bad behavior. Our model allows us to determine the effects of the introduction of a reputation system on the behavior and welfare of buyers and sellers in such a market. We show that a simple reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type. However, we also show that in some cases the same reputation system is prone to strategic manipulation by sellers who always have low quality products. In this case, we show that an alternative simple reputation system that screens for type can be superior

Suggested Citation

  • John Kennes & Aaron Schiff, "undated". "Simple Reputation Systems," Discussion Papers 05-21, University of Copenhagen. Department of Economics, revised Nov 2005.
  • Handle: RePEc:kud:kuiedp:0521
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2005/0521.pdf/
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    Cited by:

    1. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    2. Miklós-Thal, Jeanine & Schumacher, Heiner, 2013. "The value of recommendations," Games and Economic Behavior, Elsevier, vol. 79(C), pages 132-147.
    3. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978, September.
    4. Kennes, John & Schiff, Aaron, 2008. "Quality infomediation in search markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1191-1202, September.
    5. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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