Abstract
A patient seller interacts with a sequence of myopic consumers. Each period, the seller chooses the quality of his product, and a consumer decides whether to trust the seller after she observes the seller's actions in the last K periods (limited memory) and at least one previous consumer's action (observational learning). However, the consumer cannot observe the seller's action in the current period. With positive probability, the seller is a commitment type who plays his Stackelberg action in every period. I show that under limited memory and observational learning, consumers are concerned that the seller will not play his Stackelberg action when he has a positive reputation and will play his Stackelberg action after he has lost his reputation. Such a concern leads to equilibria where the seller receives a low payoff from building a reputation. I also show that my reputation failure result hinges on consumers' observational learning.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1441-1469 |
| Number of pages | 29 |
| Journal | Review of Economic Studies |
| Volume | 90 |
| Issue number | 3 |
| DOIs | |
| State | Published - May 1 2023 |
Funding
I thank Daron Acemoglu, S. Nageeb Ali, Alp Atakan, Jie Bai, Dhruva Bhaskar, Sushil Bikhchandani, Joyee Deb, Eddie Dekel, Mira Frick, Drew Fudenberg, Olivier Gossner, Daniel Hauser, Kevin He, Ju Hu, Yuhta Ishii, Navin Kartik, Elliot Lipnowski, George Lukyanov, Daniel Luo, George Mailath, Moritz Meyer-ter- Vehn, Wojciech Olszewski, Mallesh Pai, Evan Sadler, Peter Norman Sørensen, Bruno Strulovici, Adam Szeidl, Caroline Thomas, Juuso Toikka, Chris Udry, Udayan Vaidya, Juuso Välimäki, Alex Wolitzky, Tomer Yehoshua-Sandak, and four anonymous referees for helpful comments. I thank NSF Grant SES-1947021 for financial support.
Keywords
- Imitation
- Observational learning
- Reputation
- Reputation failure
ASJC Scopus subject areas
- Economics and Econometrics