Reputation Signals and Market Outcomes
Hugo Hopenhayn*, Maryam Saeedi
Date: 2018-05-11 5:00 pm – 5:30 pm
Last modified: 2018-04-27
Abstract
The importance of reputation signals in markets where product quality is imperfectly observed has been long emphasized. In particular, this is a key consideration for the overall performance of trading platforms and online markets that are becoming increasingly important mechanisms for trade. We consider here reputation signals as imperfect aggregators of trade histories that are correlated with firm quality. This is the case, for example, of quality badges given by some trading platforms that partition sellers into a small number (in many cases two) of groups. This paper considers the impact of such reputation mechanisms on market outcomes (e.g. prices and market shares), the impact of information quality and the question of design of optimal partitions.