Censorship and Reputation
35 Pages Posted: 12 Mar 2020 Last revised: 18 Nov 2021
Date Written: February 7, 2020
I study how a firm manages its reputation by both investing in the quality of its product and censoring, hiding bad news from consumers. Without censorship, the threat of bad news provides strong incentives for investment. I highlight discontinuities in the firm's maximum equilibrium payoff that censorship creates. When censorship is inexpensive, the firm never invests and a patient firm’s payoffs approach the lowest possible. In contrast, when censorship is moderately expensive, there exist equilibria where product quality is persistently high and payoffs approach the first-best, which can exceed the maximum equilibrium payoff if it was unable to censor.
Keywords: Reputation, Censorship, Dynamic Games
JEL Classification: C73, D82, D83, D84
Suggested Citation: Suggested Citation