Promoting a Reputation for Quality
54 Pages Posted: 1 Oct 2016 Last revised: 1 Sep 2020
Date Written: October 16, 2017
I model a firm that invests in both the quality of its product and in providing information to the market. Consumers learn about the quality through both news the firm cannot influence and promotion it controls. This ability to promote creates and enhances incentives for investment. Promotion enhances the incentives for investment at low reputations, allowing a firm with a low reputation to reestablish itself. But, the ability to promote can crowd out incentives for investment at high reputations; the firm allows its reputation to decay more before it is renewed relative to a firm motivated by only exogenous news.
Keywords: Reputation, Advertising, Promotion, Information Design
JEL Classification: C73, D82, D83, D84
Suggested Citation: Suggested Citation