DP6624 Consumer Networks and Firm Reputation: A First Experimental Investigation
|Author(s):||Steffen Huck, Gabriele Lünser, Jean-Robert Tyran|
|Publication Date:||January 2008|
|Keyword(s):||consumer network, information conditions, moral hazard, reputation, trust|
|JEL(s):||C72, C92, D40, L14|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=6624|
Arguing that consumers are the carriers of firms? reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms' incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density.