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Reputation and product quality

Rogerson, William P. (1983) Reputation and product quality. Bell Journal of Economics, 14 (2). pp. 508-516. ISSN 0361-915X. doi:10.2307/3003651.

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This article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied customers who leave and word-of-mouth advertising results in more arrivals. Second, higher fixed costs can result in a higher equilibrium level of quality. Third, the particular form that word-of-mouth advertising takes can have significant effects on the market outcome. Recommendations consisting of a report of whether the consumer intends to patronize the same firm again generate an externality that is absent when actual estimates of quality are communicated.

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Additional Information:© 1983 RAND Corporation. This work was supported by National Science Foundation Grant SES80-06654 at the Institute for Mathematical Studies in the Social Sciences, Stanford University. I would like to thank Robert Bates, Kathleen Hagerty, Alvin Klevorick, Roger Noll, Carl Shapiro, Alan Schwartz, Louis Wilde, and two anonymous referees for helpful comments and discussions. Formerly SSWP 330.
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Subject Keywords:Consumer equilibrium, Consumer economics, Consumer information, Customers, Fixed costs, Consumer choice, Recommendations, Market prices, Consumer prices, Industrial output
Issue or Number:2
Record Number:CaltechAUTHORS:20171120-131841481
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83344
Deposited By: Jacquelyn Bussone
Deposited On:20 Nov 2017 22:31
Last Modified:15 Nov 2021 19:57

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