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"Fly-By-Night" Firms and the Market for Product Reviews

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  • Faulhaber, Gerald R
  • Yao, Dennis A

Abstract

This paper presents a model that permits third-party information provision in a market characterized by information asymmetries and reputation formation. The model is used to examine how the market for information provision affects prices and supply in the primary market. They find that decreasing the cost of providing and using information (1) increases, rather than decreases, the margins received by reputable service firms; (2) decreases the price of new, untested service firms (so reputation is more costly to build); and (3) leads to more high-quality firms and less " fly-by-night" firms. Copyright 1989 by Blackwell Publishing Ltd.

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  • Faulhaber, Gerald R & Yao, Dennis A, 1989. ""Fly-By-Night" Firms and the Market for Product Reviews," Journal of Industrial Economics, Wiley Blackwell, vol. 38(1), pages 65-77, September.
    • Handle: RePEc:bla:jindec:v:38:y:1989:i:1:p:65-77
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    Cited by:

    1. Felix Oberholzer-Gee & Dennis A. Yao, 2018. "Integrated Strategy: Residual Market and Exchange Imperfections as the Foundation of Sustainable Competitive Advantage," Strategy Science, INFORMS, vol. 3(2), pages 463-480, June.
    2. Dragan Filipovich, 2005. "Permanent Effects Of Temporary Fraud In Transition Economies: The Role Of Honesty, Price, And Limited Information Flows," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 4(1), pages 3-32, Marzo 200.
    3. Sungho Yun, 2021. "Regulating corruptible certifier behavior," Journal of Regulatory Economics, Springer, vol. 59(2), pages 109-135, April.

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