Econometrica: Nov, 2013, Volume 81, Issue 6

Reputation for Quality

https://doi.org/10.3982/ECTA9039
p. 2381-2462

Simon Board, Moritz Meyer‐ter‐Vehn

We propose a model of firm reputation in which a firm can invest or disinvest in product quality and the firm's reputation is defined as the market's belief about this quality. We analyze the relationship between a firm's reputation and its investment incentives, and derive implications for reputational dynamics.