Working Paper: CEPR ID: DP6009
Authors: Steffen Huck; Gabriele K. Ruchala; Jean-Robert Tyran
Abstract: We study the effects of reputation and competition in a stylized market for experience goods. If interaction is anonymous, such markets perform poorly: sellers are not trustworthy, and buyers do not trust sellers. If sellers are identifiable and can, hence, build a reputation, efficiency quadruples but is still at only a third of the first best. Adding more information by granting buyers access to all sellers? complete history has, somewhat surprisingly, no effect. On the other hand, we find that competition, coupled with some minimal information, eliminates the trust problem almost completely.
Keywords: moral hazard; competition; experience goods; information conditions; reputation; trust
JEL Codes: C72; C92; D40; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Identification of sellers (L14) | Reputation building (Z13) |
| Reputation building (Z13) | Market efficiency (G14) |
| Complete information about seller histories (N80) | Market efficiency (G14) |
| Competition (L13) | Market outcomes (D49) |
| Competition + Minimal information (D41) | Trust problem (Z13) |
| Competition (L13) | Trust rates (Z13) |
| Competition (L13) | Honor rates (E49) |