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, 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 seller[modifier letter apostrophe]s payoff.

[1]  D. Fudenberg,et al.  Maintaining a Reputation when Strategies are Imperfectly Observed , 1992 .

[2]  Thomas Wiseman,et al.  Reputation and impermanent types , 2008, Games Econ. Behav..

[3]  Paul Resnick,et al.  Reputation systems , 2000, CACM.

[4]  Christopher Phelan,et al.  Public trust and government betrayal , 2006, J. Econ. Theory.

[5]  Heski Bar-Isaac,et al.  Reputation and Survival: Learning in a Dynamic Signalling Model , 2003 .

[6]  Qingmin Liu,et al.  Limited Records and Reputation , 2009 .

[7]  Larry Samuelson,et al.  Imperfect Monitoring and Impermanent Reputations , 2004 .

[8]  David M. Kreps,et al.  Reputation and imperfect information , 1982 .

[9]  E. Stacchetti,et al.  Towards a Theory of Discounted Repeated Games with Imperfect Monitoring , 1990 .

[10]  Michihiro Kandori,et al.  The Use of Information in Repeated Games with Imperfect Monitoring , 1992 .

[11]  Chrysanthos Dellarocas,et al.  The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback Mechanisms , 2003, Manag. Sci..

[12]  Michihiro Kandori,et al.  Less is more: an observability paradox in repeated games , 2006, Int. J. Game Theory.

[13]  Puduru Viswanadha Reddy,et al.  Essays on dynamic games , 2011 .

[14]  Qingmin Liu.  Information Acquisition and Reputation Dynamics , 2011 .

[15]  Paul R. Milgrom,et al.  Predation, reputation, and entry deterrence☆ , 1982 .

[16]  Heski Bar-Isaac,et al.  Seller Reputation , 2008, Found. Trends Microeconomics.

[17]  Harold L. Cole,et al.  Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt , 1995 .

[18]  Chrysanthos Dellarocas,et al.  Cooperation Without Enforcement? A Comparative Analysis of Litigation and Online Reputation as Quality Assurance Mechanisms , 2003, ICIS.

[19]  John H. Miller,et al.  Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence , 1993 .

[20]  Thomas Wiseman,et al.  Reputation and exogenous private learning , 2009, J. Econ. Theory.

[21]  D. Fudenberg,et al.  Reputation and Equilibrium Selection in Games with a Patient Player , 1989 .

[22]  Larry Samuelson,et al.  Who Wants a Good Reputation , 2001 .

[23]  Chrysanthos Dellarocas.  Efficiency and Robustness of Binary Feedback Mechanisms in Trading Environments with Moral Hazard , 2003 .

[24]  D. Fudenberg,et al.  Digitized by the Internet Archive in 2011 with Funding from Working Paper Department of Economics the Folk Theorem with Imperfect Public Information , 2022 .

[25]  Drew Fudenberg,et al.  Efficiency and Observability in Games with Long-Run and Short-Run Players , 1994 .