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Reputation Effects with Endogenous Records

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  • Harry Pei

Abstract

A patient firm interacts with a sequence of consumers. The firm is either an honest type who supplies high quality and never erases its records, or an opportunistic type who chooses what quality to supply and may erase its records at a low cost. We show that in every equilibrium, the firm has an incentive to build a reputation for supplying high quality until its continuation value exceeds its commitment payoff, but its ex ante payoff must be close to its minmax value when it has a sufficiently long lifespan. Therefore, even a small fraction of opportunistic types can wipe out the firm's returns from building reputations. Even if the honest type can commit to reveal information about its history according to any disclosure policy, the opportunistic type's payoff cannot exceed its equilibrium payoff when the consumers receive no information.

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  • Harry Pei, 2023. "Reputation Effects with Endogenous Records," Papers 2308.13956, arXiv.org, revised Aug 2023.
    • Handle: RePEc:arx:papers:2308.13956
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    References listed on IDEAS

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    1. Drew Fudenberg & David K. Levine, 2008. "Reputation And Equilibrium Selection In Games With A Patient Player," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 7, pages 123-142, World Scientific Publishing Co. Pte. Ltd..
    2. Drew Fudenberg & Eric Maskin, 2008. "The Folk Theorem In Repeated Games With Discounting Or With Incomplete Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 11, pages 209-230, World Scientific Publishing Co. Pte. Ltd..
    3. Timothy Besley & Andrea Prat, 2006. "Handcuffs for the Grabbing Hand? Media Capture and Government Accountability," American Economic Review, American Economic Association, vol. 96(3), pages 720-736, June.
    4. Chris Nosko & Steven Tadelis, 2015. "The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment," NBER Working Papers 20830, National Bureau of Economic Research, Inc.
    5. Simon Board & Moritz Meyer‐ter‐Vehn, 2013. "Reputation for Quality," Econometrica, Econometric Society, vol. 81(6), pages 2381-2462, November.
    6. Drew Fudenberg & Kevin He, 2018. "Learning and Type Compatibility in Signaling Games," Econometrica, Econometric Society, vol. 86(4), pages 1215-1255, July.
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