Reciprocity, Social Ties, and Competition in Markets for Experience Goods

University of Copenhagen Economics Working Paper No. 04-12

23 Pages Posted: 19 Apr 2005

See all articles by Steffen Huck

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Jean-Robert Tyran

University of Vienna; University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: 2004

Abstract

Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) firms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce firms to provide good quality which, in turn, may induce a positive externality for nonreciprocal customers who would, in the absence of reciprocal types, face market breakdown. This efficiency-enhancing effect of reciprocity is boosted when there are social ties between consumers and competition between firms. The existence of social ties or competition alone does not improve market performance.

Keywords: Social networks, reputation, reciprocity, experience goods, customer loyalty

JEL Classification: D43, L14, Z13

Suggested Citation

Huck, Steffen and Tyran, Jean-Robert, Reciprocity, Social Ties, and Competition in Markets for Experience Goods (2004). University of Copenhagen Economics Working Paper No. 04-12. Available at SSRN: https://ssrn.com/abstract=699961 or http://dx.doi.org/10.2139/ssrn.699961

Steffen Huck

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 207 679 5895 (Phone)
+44 207 916 2774 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctpshu/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jean-Robert Tyran (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/jean-robert.tyran/

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 353 23 027 (Phone)

HOME PAGE: http://www.econ.ku.dk/tyran/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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