Research Details

Abstract

Define a reputation good to be any product or service for which sellers' products are differentiated and consumers' search among sellers consists of a series of inquiries to relatives, friends, and associates for recommendations. Examples of reputation goods are personal legal services and primary medical care. The paper shows that if a monopolistically competitive industry sells a reputation good, then an increased number of sellers may perversely cause the industry's equilibrium price to rise. This result is based on maximizing behavior on both sides of the market: consumers are assumed to search rationally and sellers are assumed to profit maximize.

Type

Article

Author(s)

Mark Satterthwaite

Date Published

1979

Citations

Satterthwaite, Mark. 1979. Consumer Information, Equilibrium Industry Price, and the Number of Sellers. Bell Journal of Economics.(2): 483-502.