Censorship and Reputation

35 Pages Posted: 12 Mar 2020 Last revised: 18 Nov 2021

See all articles by Daniel N. Hauser

Daniel N. Hauser

Aalto University - Department of Economics

Date Written: February 7, 2020

Abstract

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

Hauser, Daniel, Censorship and Reputation (February 7, 2020). Available at SSRN: https://ssrn.com/abstract=3534133 or http://dx.doi.org/10.2139/ssrn.3534133

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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