Reputation and Product Quality

Reputation and Product Quality,10.2307/2555440,Rand Journal of Economics,Franklin Allen

Reputation and Product Quality   (Citations: 137)
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This article considers the role of reputation in a competitive market where product quality is unobservable. It is shown, among other things, that there can exist equilibria where price is equal to average cost but greater than marginal cost. No. firm cuts its price because this would make it more profitable to produce low- rather than high-quality goods; consumers are aware of this and would not buy its products.
Journal: Rand Journal of Economics - RAND J ECON , vol. 15, no. 3, 1984
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