Promoting a Reputation for Quality

54 Pages Posted: 1 Oct 2016 Last revised: 1 Sep 2020

See all articles by Daniel N. Hauser

Daniel N. Hauser

Aalto University - Department of Economics

Date Written: October 16, 2017

Abstract

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

Hauser, Daniel, Promoting a Reputation for Quality (October 16, 2017). PIER Working Paper No. 16-014, Available at SSRN: https://ssrn.com/abstract=2845375 or http://dx.doi.org/10.2139/ssrn.2845375

Daniel Hauser (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland

HOME PAGE: http://www.danielnhauser.com

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