Sustainable reputations with rating systems

In a product choice game played between a long lived seller and an infinite sequence of buyers, we assume that buyers cannot observe past signals. To facilitate the analysis of applications such as online auctions (e.g. eBay), online shopping search engines (e.g. BizRate.com) and consumer reports, w...

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Bibliographic Details
Published in:Journal of economic theory Vol. 146; no. 2; pp. 479 - 503
Main Author: Ekmekci, Mehmet
Format: Journal Article
Language:English
Published: New York Elsevier Inc 01.03.2011
Elsevier
Elsevier Science Publishing Company, Inc
Series:Journal of Economic Theory
Subjects:
Ankündigungseffekt
Announcements
Auctions
Business reputation
Buyers
Disappearing reputations
E-Business
Economic theory
Electronic commerce
Game theory
Games
Konsumentenverhalten
Mapping
Online reputation mechanisms
Past
Pay-off
Payoffs
Permanent reputations
Probability
Rating systems
Ratings & rankings
Reputation
Reputations
Reputations Rating systems Online reputation mechanisms Disappearing reputations Permanent reputations
Search engines
Shopping
Signal processing
Signalling
Spieltheorie
Strategic behaviour
Studies
Theorie
Rating systems
Reputations
Disappearing reputations
D82
Online reputation mechanisms
Permanent reputations
ISSN:0022-0531, 1095-7235
Online Access:Get full text
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Summary:In a product choice game played between a long lived seller and an infinite sequence of buyers, we assume that buyers cannot observe past signals. To facilitate the analysis of applications such as online auctions (e.g. eBay), online shopping search engines (e.g. BizRate.com) and consumer reports, we assume that a central mechanism observes all past signals, and makes public announcements every period. The set of announcements and the mapping from observed signals to the set of announcements is called a rating system. We show that, absent reputation effects, information censoring cannot improve attainable payoffs. However, if there is an initial probability that the seller is a commitment type that plays a particular strategy every period, then there exists a finite rating system and an equilibrium of the resulting game such that, the expected present discounted payoff of the seller is almost his Stackelberg payoff after every history. This is in contrast to Cripps, Mailath and Samuelson (2004) [5], where it is shown that reputation effects do not last forever in such games if buyers can observe all past signals. We also construct finite rating systems that increase payoffs of almost all buyers, while decreasing the sellerʼs payoff.
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ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2010.02.015