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Guided Search: The Value of a Reputation System


  • Aaron Schiff
  • John Kennes


Reputation systems have emerged as important sources of information in modern economies. This paper develops a model of reputation systems that puts buyers and sellers inside a stochastic environment involving asymmetric information and search frictions, and gives them a set of options with which to overcome these barriers to trade. This model offers predictions about the effects reputation systems have on the advertising decisions of quality differentiated sellers and the search decisions of buyers. The model also gives fairly general results regarding the welfare effects of reputation systems and provides a framework for analyzing and comparing reputation systems. We also compare equilibrium reputation systems under monopoly, competition, and social planning

Suggested Citation

  • Aaron Schiff & John Kennes, 2004. "Guided Search: The Value of a Reputation System," 2004 Meeting Papers 345, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:345

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    More about this item


    Directed Search; Reputation Systems;

    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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