Journal Article

Information Acquisition and Reputation Dynamics

Qingmin Liu

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 78, issue 4, pages 1400-1425
Published in print October 2011 | ISSN: 0034-6527
Published online February 2011 | e-ISSN: 1467-937X | DOI: https://dx.doi.org/10.1093/restud/rdq039
Information Acquisition and Reputation Dynamics

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  • Information, Knowledge, and Uncertainy
  • Game Theory and Bargaining Theory
  • Market Structure, Firm Strategy, and Market Performance

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We study dynamic incentives and behaviour in markets with costly discovery of past transactions. In our model, a sequence of short-lived customers interact over time with a single long-lived firm that privately knows its type (good or opportunistic). Customers must pay to observe the firm's past behaviour. We characterize the equilibrium structure that features accumulation, consumption, and restoration of reputation. The opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm.

Keywords: Reputation; Repeated games; Costly information acquisition; C73; D83; L14

Journal Article.  12145 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Game Theory and Bargaining Theory ; Market Structure, Firm Strategy, and Market Performance

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