Censorship and Reputation

32 Pages Posted: 12 Mar 2020 Last revised: 1 Jun 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 investing in the quality of its product and censoring bad news. Without censorship, the threat of bad news provides strong incentives for investment. I highlight two discontinuities in the firm's maximum equilibrium payoff the introduction of censorship creates. When the cost of investment exceeds the cost of censorship, the firm never invests and a patient firm’s payoffs approach the lowest possible. In contrast, when censorship is more expensive than invesment, a patient firm's 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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