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Reciprocity, Social Ties, and Competition in Markets for Experience Goods

Steffen Huck, Jean-Robert Tyran
2004 Social Science Research Network  
Tel. +45 35 32 30 82 -Fax +45 35 32 30 00 Abstract Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) ...rms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce ...rms to provide good quality which, in turn, may induce a positive externality for nonreciprocal customers who would, in the absence of reciprocal types, face market breakdown.
more » ... rket breakdown. This e¢ ciency-enhancing e¤ect of reciprocity is boosted when there are social ties between consumers and competition between ...rms. The existence of social ties or competition alone does not improve market performance.
doi:10.2139/ssrn.699961 fatcat:ldzrduqedzgmtmfkra4i3rfjze