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Reputation and impermanent types

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  • Wiseman, Thomas

Abstract

I consider a version of the chain store game where the incumbent firm’s type evolves according to a Markov process with two states: a “tough†type who always fights entry, and a “weak†type who prefers to accommodate. There exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough. Above that level, as the number of markets T increases, in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence. When T is infinite, then regardless of the discount factor there exists a sequential equilibrium in which the incumbent’s payoff is bounded below her Stackelberg payoff. Both results are in contrast to the outcome when the incumbent’s type is fixed. One interpretation is that reputation is not permanent, but must be renewed occasionally
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  • Wiseman, Thomas, 2008. "Reputation and impermanent types," Games and Economic Behavior, Elsevier, vol. 62(1), pages 190-210, January.
    • Handle: RePEc:eee:gamebe:v:62:y:2008:i:1:p:190-210
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    Cited by:

    1. Ekmekci, Mehmet & Gossner, Olivier & Wilson, Andrea, 2012. "Impermanent types and permanent reputations," Journal of Economic Theory, Elsevier, vol. 147(1), pages 162-178.
    2. Alp E. Atakan & Mehmet Ekmekci, 2012. "Reputation in Long-Run Relationships," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 451-480.
    3. Renault, Jérôme & Solan, Eilon & Vieille, Nicolas, 2013. "Dynamic sender–receiver games," Journal of Economic Theory, Elsevier, vol. 148(2), pages 502-534.
    4. Monte, Daniel, 2013. "Bounded memory and permanent reputations," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 345-354.
    5. Johannes Horner & Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2009. "On a Markov Game with One-Sided Incomplete Information," Cowles Foundation Discussion Papers 1737, Cowles Foundation for Research in Economics, Yale University.
    6. Johannes Hörner & Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2010. "On a Markov Game with One-Sided Information," Operations Research, INFORMS, vol. 58(4-part-2), pages 1107-1115, August.
    7. Schottmüller, Christoph, 2019. "Too good to be truthful: Why competent advisers are fired," Journal of Economic Theory, Elsevier, vol. 181(C), pages 333-360.
    8. Liu, Qingmin & Skrzypacz, Andrzej, 2014. "Limited records and reputation bubbles," Journal of Economic Theory, Elsevier, vol. 151(C), pages 2-29.
    9. Daron Acemoglu & Alexander Wolitzky, 2012. "Cycles of Distrust: An Economic Model," Levine's Working Paper Archive 786969000000000502, David K. Levine.
    10. Pierre Cardaliaguet & Catherine Rainer & Dinah Rosenberg & Nicolas Vieille, 2016. "Markov Games with Frequent Actions and Incomplete Information—The Limit Case," Mathematics of Operations Research, INFORMS, vol. 41(1), pages 49-71, February.
    11. Sperisen, Benjamin, 2018. "Bounded memory and incomplete information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 382-400.
    12. Dilmé, Francesc, 2019. "Reputation building through costly adjustment," Journal of Economic Theory, Elsevier, vol. 181(C), pages 586-626.
    13. Ehud Lehrer & Dimitry Shaiderman, 2022. "Markovian Persuasion with Stochastic Revelations," Papers 2204.08659, arXiv.org, revised May 2022.
    14. Benjamin Sperisen, 2018. "Bad Reputation Under Bounded And Fading Memory," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 138-157, January.
    15. 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.
    16. Hakenes, Hendrik & Katolnik, Svetlana, 2017. "On the incentive effects of job rotation," European Economic Review, Elsevier, vol. 98(C), pages 424-441.
    17. Ehud Lehrer & Dimitry Shaiderman, 2021. "Markovian Persuasion," Papers 2111.14365, arXiv.org.
    18. Ekmekci, Mehmet, 2011. "Sustainable reputations with rating systems," Journal of Economic Theory, Elsevier, vol. 146(2), pages 479-503, March.
    19. Andrew Mell, 2015. "Fooling Some of the People Some of the Time: Reputation Management and Optimal Betrayal," Economics Series Working Papers 770, University of Oxford, Department of Economics.

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    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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