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Sustainable Reputations with Rating Systems

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  • Mehmet Ekmekci

Abstract

In a product choice game played between a long lived seller and an infnite sequence of buyers, we assume that buyers cannot observe past signals. To facilitate the analysis of applications such as online auctions (e.g. eBay), online shopping search engines (e.g. BizRate.com) and consumer reports, we assume that a central mechanism observes all past signals, and makes public announcements every period. The set of announcements and the mapping from observed signals to the set of announcements is called a rating system. We show that, absent reputation effects, information censoring cannot improve attainable payoffs. However, if there is an initial probability that the seller is a commitment type that plays a particular strategy every period, then there exists a finite rating system and an equilibrium of the resulting game such that, the expected present discounted payoff of the seller is almost his Stackelberg payoff after every history. This is in contrast to Cripps, Mailath and Samuelson (2004), where it is shown that reputation effects do not last forever in such games if buyers can observe all past signals. We also construct .nite rating systems that increase payoffs of almost all buyers, while decreasing the seller’s payoff.

Suggested Citation

  • Mehmet Ekmekci, 2010. "Sustainable Reputations with Rating Systems," Discussion Papers 1505, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1505
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ekmekci, Mehmet & Gossner, Olivier & Wilson, Andrea, 2012. "Impermanent types and permanent reputations," Journal of Economic Theory, Elsevier, pages 162-178.
    2. Aperjis, Christina & Zeckhauser, Richard J. & Miao, Yali, 2014. "Variable temptations and black mark reputations," Games and Economic Behavior, Elsevier, vol. 87(C), pages 70-90.
    3. Wiseman, Thomas, 2008. "Reputation and impermanent types," Games and Economic Behavior, Elsevier, vol. 62(1), pages 190-210, January.
    4. Liu, Qingmin & Skrzypacz, Andrzej, 2014. "Limited records and reputation bubbles," Journal of Economic Theory, Elsevier, vol. 151(C), pages 2-29.
    5. Heski Bar-Isaac & Joyee Deb, 2016. "Reputation with Opportunities for Coasting," Cowles Foundation Discussion Papers 2041, Cowles Foundation for Research in Economics, Yale University.
    6. Sharma, Priyanka, 2017. "Is more information always better? A case in credit markets," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 269-283.
    7. Mailath, George J. & Samuelson, Larry, 2015. "Reputations in Repeated Games," Handbook of Game Theory with Economic Applications, Elsevier.
    8. Qingmin Liu, 2006. "Information Acquisition and Reputation Dynamics," Discussion Papers 06-030, Stanford Institute for Economic Policy Research.
    9. repec:eee:eecrev:v:98:y:2017:i:c:p:424-441 is not listed on IDEAS
    10. Sergei Kovbasyuk & Giancarlo Spagnolo, 2016. "Memory and Markets," EIEF Working Papers Series 1606, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2017.
    11. Joseph E. Harrington Jr. & Juan-Pablo Montero, 2014. "Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance," World Scientific Book Chapters,in: THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 7, pages 175-192 World Scientific Publishing Co. Pte. Ltd..
    12. Monte, Daniel, 2013. "Bounded memory and permanent reputations," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 345-354.
    13. David Gill & Victoria Prowse, 2014. "Gender differences and dynamics in competition: The role of luck," Quantitative Economics, Econometric Society, vol. 5, pages 351-376, July.
    14. Doraszelski, Ulrich & Escobar, Juan F., 2012. "Restricted feedback in long term relationships," Journal of Economic Theory, Elsevier, vol. 147(1), pages 142-161.
    15. Benjamin Sperisen, 2016. "Bounded Memory, Reputation, and Impatience," Working Papers 1602, Tulane University, Department of Economics.
    16. repec:eee:proeco:v:191:y:2017:i:c:p:178-193 is not listed on IDEAS
    17. Margherita Bottero & Giancarlo Spagnolo, 2013. "Limited credit records and market outcomes," Temi di discussione (Economic working papers) 903, Bank of Italy, Economic Research and International Relations Area.
    18. Schularick, Moritz & Wachtel, Paul, 2012. "The making of America's imbalances," Discussion Papers 2012/16, Free University Berlin, School of Business & Economics.
    19. Bernardita Vial & Felipe Zurita, 2013. "Reputation-Driven Industry Dynamics," Documentos de Trabajo 436, Instituto de Economia. Pontificia Universidad Católica de Chile..
    20. Heski Bar-Isaac Jr. & Joyee Deb Jr., 2014. "(Good and Bad) Reputation for a Servant of Two Masters," American Economic Journal: Microeconomics, American Economic Association, pages 293-325.
    21. Nuh Aygün Dalkıran, 2016. "Order of limits in reputations," Theory and Decision, Springer, pages 393-411.

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    Keywords

    Reputations; Rating Systems; Online Reputation Mechanisms; Disappearing Reputations; Permanent Reputations. JEL Classification Numbers: D82;

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