Ratings, Reputation and Investment in Quality: The Importance of Getting a Second Chance

23 Pages Posted: 20 Dec 2007

See all articles by Arthur Fishman

Arthur Fishman

Bar-Ilan University - Department of Economics

Date Written: December 2007

Abstract

We consider how facilitating consumer's ability to compare firms' past performace with that of their competitors affects firms' incentives to invest in quality of experience goods. We show that, counterintuitively, when consumers are better informed and investment in quality is noisy, firms may invest less in quality. The reason is that the easier it is for consumers to learn about more successful competitors, the less likely it is that a firm's reputation will be able to rebound from initial failure. This in turn reduces firms' incentive to invest in acquiring a good reputation.

Keywords: reputation, information, product quality, second chance

JEL Classification: L15, D82, D83

Suggested Citation

Fishman, Arthur, Ratings, Reputation and Investment in Quality: The Importance of Getting a Second Chance (December 2007). Available at SSRN: https://ssrn.com/abstract=1077527 or http://dx.doi.org/10.2139/ssrn.1077527

Arthur Fishman (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
972-3-531-8366 (Phone)
972 3 535 3180 (Fax)

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