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Reciprocity, Social Ties, and Competition in Markets for Experience Goods

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  • Steffen Huck

    (University College London)

  • Jean-Robert Tyran

    (Institute of Economics, University of Copenhagen)

Abstract

Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) firms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce firms to provide good quality which, in turn, may induce a positive externality for nonreciprocal customers who would, in the absence of reciprocal types, face market breakdown. This efficiency-enhancing effect of reciprocity is boosted when there are social ties between consumers and competition between firms. The existence of social ties or competition alone does not improve market performance.

Suggested Citation

  • Steffen Huck & Jean-Robert Tyran, 2004. "Reciprocity, Social Ties, and Competition in Markets for Experience Goods," Discussion Papers 04-12, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0412
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    References listed on IDEAS

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    Cited by:

    1. Florian Baumann & Tim Friehe & Kristoffel Grechenig, 2010. "Switching Consumers and Product Liability: On the Optimality of Incomplete Strict Liability," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_03, Max Planck Institute for Research on Collective Goods.
    2. Huck, Steffen & Lünser, Gabriele K. & Tyran, Jean-Robert, 2012. "Competition fosters trust," Games and Economic Behavior, Elsevier, vol. 76(1), pages 195-209.
    3. Bauernschuster, Stefan & Falck, Oliver & Große, Niels, 2013. "When trustors compete for the favour of a trustee – A laboratory experiment," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 133-147.
    4. Baumann, Florian & Friehe, Tim & Grechenig, Kristoffel, 2011. "A note on the optimality of (even more) incomplete strict liability," International Review of Law and Economics, Elsevier, vol. 31(2), pages 77-82, June.
    5. Roman Hoffmann & Bernhard Kittel & Mattias Larsen, 2021. "Information exchange in laboratory markets: competition, transfer costs, and the emergence of reputation," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 118-142, March.
    6. Sophie Bienenstock, 2016. "Consumer education: why the market doesn’t work," European Journal of Law and Economics, Springer, vol. 42(2), pages 237-262, October.

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    More about this item

    Keywords

    social networks; reputation; reciprocity; experience goods; customer loyalty;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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