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Word-of-Mouth Communication and Community Enforcement

Author

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  • Ahn, Illtae
  • Suominen, Matti

Abstract

We study a repeated game where a seller, who has a short-term incentive to supply low quality, is periodically matched with a randomly selected buyer. Buyers observe only the outcomes of their neighbors' games and may receive signals from them. When the buyer population is large, the seller may sell high quality even when each buyer observes her action in any given period with an arbitrarily small probability. When networking among buyers is costly, low quality is always supplied with a positive probability. For this case, we characterize an equilibrium where the seller randomizes between high and low quality.

Suggested Citation

  • Ahn, Illtae & Suominen, Matti, 2001. "Word-of-Mouth Communication and Community Enforcement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 399-415, May.
    • Handle: RePEc:ier:iecrev:v:42:y:2001:i:2:p:399-415
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    Citations

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    Cited by:

    1. Zakaria Babutsidze & Robin Cowan, 2014. "Showing or telling? Local interaction and organization of behavior," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(2), pages 151-181, October.
    2. S. Nageeb Ali & David A. Miller, 2020. "Communication and Cooperation in Markets," Papers 2005.09839, arXiv.org.
    3. Luciana C Moscoso Boedo & Antonio Jimenez-Martinez, 2015. "Identifying defectors in a population with short-run players," Economics Bulletin, AccessEcon, vol. 35(2), pages 1392-1403.
    4. Lippert, Steffen & Spagnolo, Giancarlo, 2011. "Networks of relations and Word-of-Mouth Communication," Games and Economic Behavior, Elsevier, vol. 72(1), pages 202-217, May.
    5. Eleonora Patacchini & Edoardo Rainone, 2017. "Social Ties and the Demand for Financial Services," Journal of Financial Services Research, Springer;Western Finance Association, vol. 52(1), pages 35-88, October.
    6. Bose Gautam, 2010. "The Fragmentation of Reputation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-36, April.
    7. Mark Bowden & Stuart McDonald, 2008. "The Impact of Interaction and Social Learning on Aggregate Expectations," Computational Economics, Springer;Society for Computational Economics, vol. 31(3), pages 289-306, April.
    8. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2007. "Social Memory and Evidence from the Past," Levine's Bibliography 321307000000000850, UCLA Department of Economics.
    9. Balmaceda, Felipe & Escobar, Juan F., 2017. "Trust in cohesive communities," Journal of Economic Theory, Elsevier, vol. 170(C), pages 289-318.
    10. King, Maia, 2020. "The probabilities of node-to-node diffusion in fixed networks," SocArXiv dfq8y, Center for Open Science.
    11. Zakaria Babutsidze & Robin Cowan, 2011. "Word-of-mouth interaction and the organization of behaviour," Documents de Travail de l'OFCE 2011-11, Observatoire Francais des Conjonctures Economiques (OFCE).

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