Reputation and Competition with Social Convention

Piero Tedeschi, Alessandro Fedele

Research output: Working paper

Abstract

In this note we develop a pure hidden action model of reputation and repeated Bertrand competition, where firms are homogeneous, entry is free, and consumers infer future non-contractible quality both from information about past quality and from current prices. We show that a positive level of quality is sustained as an outcome of a stationary equilibrium, together with a social convention about the minimum acceptable quality. If instead the social convention is not relevant, more entry occurs at the cost of worse quality and lower consumer welfare. Keywords: reputation, pure hidden action, Bertrand competition, social convention
Original languageEnglish
PublisherIELI
Number of pages9
Publication statusPublished - 2011

Keywords

  • Reputation
  • insurance
  • quality
  • social convention

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