American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Censorship and Reputation
American Economic Journal: Microeconomics
vol. 15,
no. 1, February 2023
(pp. 497–528)
Abstract
I study how a firm manages its reputation by both investing in the quality of its product and censoring, hiding bad news from consumers. Without censorship, the threat of bad news provides strong incentives for investment. I highlight discontinuities in the firm's maximum equilibrium payoff that censorship creates. When censorship is inexpensive, the firm never invests and a patient firm's payoffs approach the lowest possible. In contrast, when censorship is moderately expensive, there exist equilibria where product quality is persistently high and payoffs approach the first-best, which can exceed the maximum equilibrium payoff if it was unable to censor.Citation
Hauser, Daniel N. 2023. "Censorship and Reputation." American Economic Journal: Microeconomics, 15 (1): 497–528. DOI: 10.1257/mic.20200266Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L15 Information and Product Quality; Standardization and Compatibility
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