Template-Type: ReDIF-Paper 1.0
Author-Name: Alessandro Fedele
Author-X-Name-First: Alessandro 
Author-X-Name-Last: Fedele
Author-Email: fedele@eco.unibs.it
Author-Workplace-Name: Department of Economics, Università di Brescia
Author-Name: Piero Tedeschi
Author-X-Name-First: Piero
Author-X-Name-Last: Tedeschi
Author-Email: Piero.tedeschi@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica
Title: Quality and Reputation: Is Competition Beneficial to Consumers?
Abstract: In this paper we develop a model of product quality and firms' reputation. If quality is not verifiable and there is repeated interaction between firms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that competitive firms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. Positive profit are generated in equilibria characterized by the emergence of a social norm which prescribes a minimum quality level. Moreover, we demonstrate that more concentrated industry structures deliver better quality and higher social and consumer welfare. This finding should induce cautiousness in enhancing competition when product quality is at stake. We derive our results in the specific context of after-sales service quality provided by insurance companies. Yet, we argue that our analysis is of general applicability.
Length: 30
Creation-Date: 2010-10
File-URL: http://www.unicatt.it/Istituti/EconomiaImpresaLavoro/Quaderni/IEIL0061.pdf
File-Format: Application/pdf
File-Function: First version, 2010
Number: ieil0061
Classification-JEL: L13, D82, D81, C73
Keywords: quality, reputation, Bertrand competition, insurance contracts.
Handle: RePEc:ctc:serie4:ieil0061