Competition, Reputation and Cheating

Arbeitspapier

Under repeated market interaction, reputation and competition may drive out of the market those firms that do not comply with their quality promises. One may thus presume that competitive pressure improves average market quality. This paper shows that the opposite may be true in an endogenous entry, repeated interaction, linear demand oligopoly model, in which introductory prices may be used as quality signals. Cheating firms may enter the market, fool even rational consumers, and exit the market when discovered, implying a failure of the basic reputation mechanism and an increasing time path of prices. Markets for closer substitutes tend to have a lower initial average quality and less trusting consumers, whereas the number of competitors has no clear relationship with average quality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni - Working Paper DSE ; No. 683

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Transactional Relationships; Contracts and Reputation; Networks ; Information and Product Quality; Standardization and Compatibility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vanin, Paolo
• Event: Veröffentlichung
• (who): Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)
• (where): Bologna
• (when): 2009

Further information

• DOI: doi:10.6092/unibo/amsacta/4561
• Handle: http://hdl.handle.net/10419/159524
• Last update: 10.03.2025, 11:41 AM CET