DOCSLIB.ORG

Interaction-Based Reputation Model in Online Social Networks

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Interaction-Based Reputation Model in Online Social Networks Interaction-based Reputation Model in Online Social Networks Izzat Alsmadi1, Dianxiang Xu2 and Jin-Hee Cho3 1Department of Computer Science, University of New Haven, West Haven, CT, U.S.A. 2Department of Computer Science, Boise State University, Boise, ID, U.S.A. 3US Army Research Laboratory, Adelphi, MD, U.S.A. Keywords: Online Social Networks, Reputation, User Attributes, Privacy, Information Credibility. Abstract: Due to the proliferation of using various online social media, individual users put their privacy at risk by posting and exchanging enormous amounts of messages or activities with other users. This causes a seri- ous concern about leaking private information out to malevolent entities without users’ consent. This work proposes a reputation model in order to achieve efficient and effective privacy preservation in which a user’s reputation score can be used to set the level of privacy and accordingly to determine the level of visibility for all messages or activities posted by the users. We derive a user’s reputation based on both individual and relational characteristics in online social network environments. We demonstrate how the proposed reputation model can be used for automatic privacy assessment and accordingly visibility setting for messages / activities created by a user. 1 INTRODUCTION likes, tags, posts, comments) to calculate the degree of friendship between two entities (Jones et al., 2013). As the use of online social network (OSN) appli- An individual user’s reputation can be determined cations becomes more and more popular than ever, based on a variety of aspects of the user’s attributes. many people share their daily lives by posting stories, One of the important attributes is whether the user comments, videos, and/or pictures, which may ex- feeds quality information such as correct, accurate, pose their private / personal information (Mansfield- or credible information. While users are free to Devine, 2008). In such contexts, privacy became a post their opinions, OSNs should promote propa- critical issue because private information can be ex- gation of credible information to maintain friendly, posed to the public (e.g., by search engines) without healthy OSN environments. To this end, we pro- the user’s consent. pose our reputation model in which reputation is com- This work proposes a reputation model that eval- puted based on a user’s personal attributes embrac- uates an individual’s reputation based on his/her in- ing his/her background and affiliations and relational teractions with peers such as friends in OSNs. Rep- attributes including interactions with others and the utation is defined as an opinion about an entity, ei- reputation levels of the user’s friends. ther something or someone including a person, orga- An example scenario can be as follows. User i nization, service, etc., based on third parties’ opinions continuously posts highly helpful, relevant informa- (e.g., recommendations). In particular, many OSN tion in OSNs. When user j continuously interacts sites have different mechanisms to estimate reputa- with those posts fed by users i and j will be listed tion. For example, Facebook uses the concept of a as one of top contributors for those activities. User friend with three different levels such as close friend, j can list user i as one of his/her top peers. In terms friends, and acquaintances in order to categorize the of user j’s reputation, user i, one of j’s top peers, is closeness-based friendship. This kind of friends can a key contributor to improve user j’s reputation. Ac- be designated by an individual user and does not rep- cordingly, user i will be encouraged to post such types resent the degree of friendship based on the amount of activities that may attract more interactions with of interactions between two individual users. Similar other peers, leading to increasing her/his reputation to web ranking algorithms, some algorithms of scor- indirectly. ing friendship use the number of interactions (e.g., Many OSN applications are equipped with their 265 Alsmadi, I., Xu, D. and Cho, J-H. Interaction-based Reputation Model in Online Social Networks. DOI: 10.5220/0005668302650272 In Proceedings of the 2nd International Conference on Information Systems Security and Privacy (ICISSP 2016), pages 265-272 ISBN: 978-989-758-167-0 Copyright c 2016 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved ICISSP 2016 - 2nd International Conference on Information Systems Security and Privacy own algorithms to estimate peer relationships. For in- user. The reputation-based privacy setting can be stance, Facebook calculates “close friends” or ranks an adaptive support mechanism for a user to set each friend based on interactions including profile his/her privacy setting more effectively and effi- view, group interactions, the number of likes and/or ciently. recency of interactions. In this work, we aim to pro- The rest of this work is organized as follows. Section pose a generic model of reputation which can rep- 2 discusses how an entity’s reputation is derived by resent comprehensive aspects of an individual’s trust describing each component of reputation. Section 3 based on collected information for statistical calcu- describes how the proposed reputation model is ap- lation / analysis but without revealing any private plied to privacy assessment in OSNs. Section 4 gives content of an individual such as activity content, or an overview of related work in terms of existing mod- friends’ identities without the user’s consent. There- els of trust, reputation, and privacy in OSNs. Section fore, our proposed reputation model is to assess an in- 5 concludes this work and suggests future work direc- dividual’s reputation based on his/her individual and tions. relational attributes while preserving the individual’s privacy. This paper has the following contributions: We propose a reputation model in which reputa- 2 REPUTATION MODEL • tion score is derived from multiple aspects of a The focus of the proposed reputation system is on user, particularly, in terms of individual attributes how to derive reputation score for a user, either an in- and relational attributes. This way of estimat- dividual user or an organization, who has an account ing reputation is to ensure the quality of an in- in social network media. In this work, we consider a formation provider by assessing a user’s personal graph G where an entity is a vertex, v and the social attribute (e.g., work, education, interest groups) i relationship between two entities, i and j, is an edge, while assuring information credibility based on e , as many studies assume. If two entities are con- the popularity of activities created by the user. In i, j nected with an edge, this means the two entities are addition, by assessing the quality of peers exhibit- friends to each other. But note that the degree of trust ing active interactions through the user’s activi- a different entity has towards a same third-party entity ties, the reputation score of an entity can repre- is different, implying the trust relationship is subjec- sent multidimensional aspects of trustworthiness tive and asymmetric (Cho et al., 2011). in each entity. We estimate an individual user’s reputation score Although an entity’s reputation value is de- based on the following three components: • rived from multidimensional aspects of his/her at- Personal attributes including occupation, educa- tributes, the proposed reputation model aims to • preserve the user’s privacy by not exposing any tion level, affiliated groups, favorites, interest, or information to any peers without the user’s con- political leaning which may represent an entity’s sent. In particular, since reputation is estimated social identity; based on the amount of interactions but the con- Personal activities representing the quality and tent of activities / messages, an entity’s privacy • quantity of interactions with other friends through is well preserved unless the entity permits special posts, likes, tweets, creation of interest-driven actions to manually set the privacy level (e.g., spe- groups; cial permission for a spouse to see all the activities Characteristics associated with an individual’s / messages although he / she is not active on on- • friends indicating the amount of interactions with line interactions). friends and the friends’ reputation levels; The proposed reputation model is adaptive to re- • The first component is called individual attributes flect the dynamic evolution of an entity’s reputa- while the other two components are called relational tion. As an entity’s interactions or activities are attributes. Figure 1 describes what characteristics of updated, the entity’s reputation is updated as well an individual user are considered to derive a reputa- and accordingly it will be reflected in updating tion score as discussed above. To be specific, top L privacy setting for each peer on visibility of ac- personal attributes, top M personal activities, and top tivities / messages the user posts. In addition, our K peers are considered to derive the user’s overall rep- reputation model allows human intervention (e.g., utation. Individual user i’s reputation score, Ri, can be a user can manually modify privacy setting for a given by: particular peer) when the automated system set- ting of privacy is not agreed with the need of a R = α P + β P + µ R (1) i × i,L × i,M × i,K 266 Interaction-based Reputation Model in Online Social Networks have its individual online social network page. All the entities may have their gateways to the different OSNs in addition to the main entity portal. For some entities, their social network pages are visited as of- ten as their main portals by having a great number of members, friends, or subscribers. Estimated reputa- tion scores of those entities can be used for several possible use cases.
Load more

Recommended publications
  • Reputation for Quality
    Econometrica, Vol. 81, No. 6 (November, 2013), 2381–2462 REPUTATION FOR QUALITY BY SIMON BOARD AND MORITZ MEYER-TER-VEHN1 We propose a model of firm reputation in which a firm can invest or disinvest in product quality and the firm’s reputation is defined as the market’s belief about this quality. We analyze the relationship between a firm’s reputation and its investment incentives, and derive implications for reputational dynamics. Reputational incentives depend on the specification of market learning. When con- sumers learn about quality through perfect good news signals, incentives decrease in reputation and there is a unique work–shirk equilibrium with ergodic dynamics. When learning is through perfect bad news signals, incentives increase in reputation and there is a continuum of shirk–work equilibria with path-dependent dynamics. For a class of imperfect Poisson learning processes and low investment costs, we show that there ex- ists a work–shirk equilibrium with ergodic dynamics. For a subclass of these learning processes, any equilibrium must feature working at all low and intermediate levels of reputation and shirking at the top. KEYWORDS: Reputation, monitoring processes, firm dynamics, investment. 1. INTRODUCTION INMOSTINDUSTRIES, firms can invest in the quality of their products through human capital investment, research and development, and organizational change. Often these investments and the resulting quality are imperfectly ob- servable, giving rise to a moral hazard problem. The firm then invests so as to build a reputation for quality, justifying premium prices in the future. This pa- per analyzes the investment incentives in such a market, examining how they depend on the current reputation of the firm and the information structure of market observations.
    [Show full text]
  • Reputation As Information
    Reputation as Information: A Multilevel Approach to Reputation in Organizations DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Erin Elizabeth Coyne Graduate Program in Labor and Human Resources The Ohio State University 2010 Dissertation Committee: Steffanie L. Wilk, Advisor David B. Greenberger Roy J. Lewicki Copyright by Erin E. Coyne 2010 Abstract Research on reputation has taken a variety of disparate approaches that has created conceptual confusion. This dissertation attempts to disentangle and clarify the reputation construct by elucidating the definition, introducing a theoretical framing, establishing a new level of analysis and investigating interactive effects. A multilevel approach of studying reputation is introduced and serves as a guide for the dissertation in directing the focus on the three main purposes of this study. First, the theoretical foundations of similarity among multiple levels of reputation are established through the development of a “Reputation as Information” framework. Second, a new proximal contextual construct of unit level of reputation is introduced and explored. As such, this study describes the antecedents and outcomes associated with the more proximal level of unit reputation. Third, cross-level effects of the “big fish in the little pond” and the “little fish in the big pond” (personal and unit level reputation) on individual outcomes are investigated. The procedures used to study these issues included gathering organizational data in a field study using employee surveys, supervisor surveys, and obtaining archival information from the company. These data were analyzed using multiple regression, hierarchical linear modeling, and multiple mediation models.
    [Show full text]
  • Review & Reputation Management Platforms
    REVIEW & REPUTATION MANAGEMENT PLATFORMS BUYER’S GUIDE 2019 Edition Underwritten, in part by: Buyers guide created in collaboration with TrustYou CONCEPTUALIZATION, DESIGN, DATA AND COPY EDITING: Hotel Tech Report CONTENT & RESEARCH Benjamin Jost Valerie Castillo Katharina Sickora TABLE OF CONTENTS WHAT IS REPUTATION MANAGAMENT SOFTWARE 2 Overview 3 Key benefits and reasons to adopt 4 What hoteliers are saying 6 Recent trends 8 BUYING ADVICE AND RECOMMENDATIONS 11 Critical features 12 Top rated providers by hoteliers (bonus: Side-by-side comparisons) 13 Integrations to consider 17 Key questions to ask vendors during your research 19 HOW MUCH TO BUDGET AND WHAT TO EXPECT 21 Pricing models, budgeting and implementation 22 Key success metrics 23 Success stories, news and articles 25 WHAT IS reputation management software? OVERVIEW Reputation and review management solutions aggregate all forms of guest feedback from across the web to help hoteliers read, respond, and analyze Gthe feedback in an efficient manner. 95% of guests read reviews prior to making a booking decision, and after price, reviews are the most important decision variable when booking a hotel. With reputation and review management solutions, hotels can positively impact the reviews and ratings that travelers are seeing when making a booking decision. Hotel Tech Report | 2019 Reputation Management Software Buyer’s Guide 3 WHAT are THE key benefits OF reputation management software? OVERVIEW 1 2 3 DRIVE DIRECT IMPROVE GUEST INCREASE BOOKINGS SATISFACTION REVENUE Online reviews influences millions Review collection allows hotels to Reputation management of booking decisions on hundreds boost their online review scores creates insights from your of OTAs and meta-search sites, and gather valuable customer reviews that benchmark your while encouraging travelers to insights in order to continuously hotel versus competitors and book directly on your hotel improve the guest experience.
    [Show full text]
  • Competitive Strategy: Week 11 Reputation and Cooperation Why Is
    ' $ Competitive Strategy: Week 11 Reputation and Cooperation Simon Board & % Eco380, Competitive Strategy 1 ' $ Why is Reputation Useful? ² Cooperation between competitors { Prices. { New product design, standards, market development, lobbying, advertising. ² Complementors. { New products. ² Suppliers { Reputation not to hold up suppliers. ² Buyers { Reputation for high quality product ² Entrants { Reputation for toughness to ¯ght entry. & % Eco380, Competitive Strategy 2 ' $ Tacit Cooperation over Prices ² Tacit cooperation { Cooperation without explicit agreements. { Agreements not enforceable by court. ² Key ingredients { Shared interest as basis for cooperation. { Mechanism for punishment. { Mechanism for recovering from mistakes. ² Warning: price ¯xing is illegal! { Cooperation on R&D or advertising is not. & % Eco380, Competitive Strategy 3 ' $ Cases ² American Airlines circa 1990 { After deregulation there were frequent price wars { Interpretation: AA was trying to teaching rivals how to cooperate. { But bankrupt rivals had no interest in playing along. ² 1955 Automobile Price War { 45% more cars were produced in 1955 than 1954 or 1956. ² Joint Executive Committee { Classic railroad cartel from 1880s { Involved in price war 1/3 of the time & % Eco380, Competitive Strategy 4 ' $ Punishment ² Is punishment severe enough to deter defection? { Price war may need to be very long. { AA couldn't punish bankrupt airlines su±ciently. ² Is punishment credible? { Punishment is costly, but must be optimal after defection. { Idea: get punished for not punishing. { Problem: must avoid renegotiation. ² When to punish? { Is deviation deliberate or by mistake? { Threshold rule: market share cannot rise above 20%. { Ambiguous rule: prob of price war rises with market share. & % Eco380, Competitive Strategy 5 ' $ Recovery ² How do you recover from mistakes? ² Could punish for ¯xed time ² Make punishment ¯t the crime { Deeper and longer price war for larger transgression.
    [Show full text]
  • CHARACTER EVIDENCE QUICK REFERENCE Reputation – Opinion – Specific Instances of Conduct - Habit
    CHARACTER EVIDENCE QUICK REFERENCE reputation – opinion – specific instances of conduct - habit Character of the Defendant – 404(a)(1) (pages 14-29) (pages 4-8) * Test: Proper Purpose + Relevance + Time * Test: Relevance (to the crime charged) + Similarity + 403 balancing; rule of inclusion + 403 balancing; rule of exclusion * Put basis for ruling in record (including * Defendant gets to go first w/ "good 403 balancing analysis) character" evidence – reputation or opinion only (see rule 405) * D has burden to keep 404(b) evidence out ^ State can cross-examine as to specific instances of bad character * proper purposes: motive, opportunity, knowledge/intent, preparation/m.o., common * Law-abidingness ALWAYS relevant scheme/plan, identity, absence of mistake/ accident/entrapment, res gestae (anything * General good character not relevant but propensity) * Defendant's character is substantive ^ Credibility is never proper – 608(b), not 404(b) evidence of innocence – entitled to instruction if requested * time: remoteness is less significant when used to show intent, motive, m.o., * D's evidence of self-defense does not knowledge, or lack of mistake/accident - automatically put character at issue * remoteness more significant when common scheme or plan (seven year rule) ^ unless continuous course of conduct, or D is gone * similarity: particularized, but not Character of the victim – 404(a)(2) (pages 8-11) necessarily bizarre ^ the more similar acts are, the less problematic time is * Test: Relevance (to the crime charged) + 403 balancing;
    [Show full text]
  • What Is Reputation and Why Is It Important?
    WHAT IS REPUTATION AND WHY IS IT IMPORTANT? There is an old proverb that says character is the story you write about yourself, a good reputation for the treatment of staff reputation is the story others write about you - let us hope “reputation” is a reflection of compared with other employers. Although that “character” written. reputation may be an intangible concept, a good one will demonstrably increase A corporate/company/association For any organisation, the achievement of worth and provide sustained competitive identity is constructed by how internal its objectives is the main reason for its exis- advantages. and external perceptions are evaluated tence and, with a good reputation among in relation to each other, a sort of its stakeholders, achieving those objectives BUILDING A GOOD REPUTATION simultaneous mirroring process. An will be easily done. Clients will prefer to deal So it seems logical to work actively not only organisation considers and promotes itself with you instead of others and they in turn to build a good reputation but also to assess as a certain type, stakeholders monitor can influence other potential customers. any existing or potential threats to that this self-classification and if it matches Suppliers will be more inclined to trust your reputation and to take actions to avoid or their expectations it generates a positive organisation if you have a reputation for fair mitigate them. Whether or not we are pre- reputation. dealing. A potential employee will be more pared to manage these reputational risks is likely to prefer your organisation if you have another question.
    [Show full text]
  • Reputation and Its Management in Education
    Reputation Management for Education A Review of the Academic & Professional Literature David Roberts 2009 © 2009 The Knowledge Partnership [email protected] www.theknowledgepartnership.com Foreword Belatedly, reputation management is now widely acknowledged by education marketers as being a more appropriate concept for developing a positive image for a higher or further education institute than the process of “branding”. We might debate why it has taken so long for this particular penny to drop, since marketers claim to be able to understand the culture of their target audiences and to be able to position concepts and products accordingly. It seems that where branding and reputation is concerned, the resistance of large swathes of the academic community to “marketing” can be laid at the door of those who continue to over-sell the value and scope of branding. Reading articles and listening to platform speakers you could be forgiven for mistakenly believing that branding had become synonymous with marketing – as though all the other factors that lead users of a service to choose, refer and renew their relationship with providers are relegated to, or subsumed within, “branding”. Maybe the problem is largely one of definition, but branding, as a managed process needs to be firmly put back in its box. It is a valuable and necessary tool, but nothing more. Since 2001 I have been researching reputation in education markets with various stakeholder groups and with those who manage and market education. My research and professional experience consistently finds that students, alumni, academics and vice- chancellors all feel more comfortable with “reputation” as a concept.
    [Show full text]
  • Computational Models of Trust and Reputation: Agents, Evolutionary Games, and Social Networks
    Computational Models of Trust and Reputation: Agents, Evolutionary Games, and Social Networks by Lik Mui B.S., M.Eng., Electrical Engineering and Computer Science Massachusetts Institute of Technology, 1995 M. Phil., Management Studies, Department of Social Studies University of Oxford, 1997 Submitted to the Department of Electrical Engineering and Computer Science in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Electrical Engineering and Computer Science at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY December 20, 2002 Copyright 2002 Massachusetts Institute of Technology. All rights reserved. Signature of Author: ____________________________________________________________ Department of Electrical Engineering and Computer Science December 20, 2002 Certified by: ___________________________________________________________________ Peter Szolovits Professor of Electrical Engineering and Computer Science Thesis Supervisor Accepted by: __________________________________________________________________ Arthur C. Smith Professor of Electrical Engineering and Computer Science Chairman, Department Committee on Graduate Students Computational Models of Trust and Reputation: Agents, Evolutionary Games, and Social Networks by Lik Mui Submitted to the Department of Electrical Engineering and Computer Science on December 20, 2002 in partial fulfillment of the requirements for the Degree of Doctor of Philosophy in Electrical Engineering and Computer Science Abstract Many recent studies of trust and reputation are made
    [Show full text]
  • The Impact of Organizational Culture on Corporate Performance
    Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2016 The mpI act of Organizational Culture on Corporate Performance Tewodros Bayeh Tedla Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Business Administration, Management, and Operations Commons, Management Sciences and Quantitative Methods Commons, and the Organizational Behavior and Theory Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Tewodros Bayeh Tedla has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Charles Needham, Committee Chairperson, Doctor of Business Administration Faculty Dr. Tim Truitt, Committee Member, Doctor of Business Administration Faculty Dr. Roger Mayer, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer Eric Riedel, Ph.D. Walden University 2016 Abstract The Impact of Organizational Culture on Corporate Performance by Tewodros Bayeh Tedla MS, California State University, 2013 MBA, Unity University, 2009 BS, Unity University, 2006 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University June 2016 Abstract Lack of effective organizational culture and poor cultural integration in the corporate group affect organizational performance and decrease shareholders return.
    [Show full text]
  • The Role of Reputation for Achieving Competitive Advantage
    Advances in Economics, Business and Management Research, volume 36 11th International Conference on Business and Management Research (ICBMR 2017) The Role of Reputation for Achieving Competitive Advantage 1 2 Sri Sarjana * and Nur Khayati 1Faculty of Economics and Business, Padjajaran University Email: [email protected] 2SMAN 1 Cikarang Utara, Bekasi ABSTRACT Corporate reputation is an assessment of stakeholders based on their existence, leadership, and innovation. This study empirically investigates the effects of corporate social responsibility (CSR), dynamic capabilities, reputation, and competitive advantage in manufacturing industries. An active role of manufacturing industries for involvement in CSR is needed by stakeholders in order to sustain the economic, social, and environmental aspects that ultimately increase the reputation of an objective that can be achieved by manufacturing industries. The development of dynamic capabilities is an internal factor for manufacturing industries into sections to win a competitive advantage. The authors conducted a survey to test the hypotheses and designed a SEM to analyze them. The results show that CSR has a positive effect on reputation. Dynamic capabilities have an effect on competitive advantage. This study concludes that reputation has an effect on competitive advantage. This finding integrates insights in a reputation framework into a generalization having a direct effect on competitive advantage in manufacturing industries. This research is expected to provide manufacturing industries with valuable suggestions for management practices to increase reputation and achieve the industrial goals especially to win the competitive advantage. Keywords: competitive advantage, reputation, CSR, dynamic capability 1. Introduction Opportunities and benefits for firms, such as cost reductions, efficiency improvements, better supplier relationships, access to global markets, new customers and suppliers, productivity improvements, increased profits and gains in competitive advantage (Fauska et al., 2013).
    [Show full text]
  • Reputation Management and Social Media How People Monitor Their Identity and Search for Others Online
    Reputation Management and Social Media How people monitor their identity and search for others online May 26, 2010 Mary Madden, Senior Research Specialist Aaron Smith, Research Specialist http://pewinternet.org/Reports/2010/Reputation-Management.aspx Pew Internet & American Life Project An initiative of the Pew Research Center 1615 L St., NW – Suite 700 Washington, D.C. 20036 202-419-4500 | pewinternet.org Summary of Findings Reputation management has now become a defining feature of online life for many internet users, espe- cially the young. While some internet users are careful to project themselves online in a way that suits specific audiences, other internet users embrace an open approach to sharing information about them- selves and do not take steps to restrict what they share. Search engines and social media sites play a central role in building one’s reputation online, and many users are learning and refining their approach as they go--changing privacy settings on profiles, customizing who can see certain updates and deleting unwanted information about them that appears online. Over time, several major trends have indicated growth in activities related to online reputation manage- ment: • Online reputation-monitoring via search engines has increased – 57% of adult internet users now use search engines to find information about themselves online, up from 47% in 2006. • Activities tied to maintaining an online identity have grown as people post information on profiles and other virtual spaces – 46% of online adults have created their own profile on a social networking site, up from just 20% in 2006. • Monitoring the digital footprints of others has also become much more common—46% of internet users search online to find information about people from their past, up from 36% in 2006.
    [Show full text]
  • Reputation and Competition
    Reputation and Competition By JOHANNES HO¨ RNER* This paper shows how competition generates reputation-building behavior in re- peated interactions when the product quality observed by consumers is a noisy signal of firms’ effort level. There are two types of firms and “good” firms try to distinguish themselves from “bad” firms. Although consumers get convinced that firms which are repeatedly successful in providing high quality are good firms, competition endogenously generates the outside option inducing disappointed con- sumers to leave firms. This threat of exit induces good firms to choose high effort, allowing good reputations to be valuable, but its uncompromising execution forces good firms out of the market. (JEL C7, D8) We are what we repeatedly do. Excellence, Examples of such “experience good” markets then, is not an art, but a habit. include nondurables such as wine, durables —Aristotle, Nicomachean Ethics such as appliances and cars, and most service providers such as lawyers, mechanics, and air- In traditional competitive theory, economists lines.1 In these settings, a consumer’s experi- assume that market participants have complete ence with a particular product becomes a knowledge of all relevant factors. This assump- precious guide—providing imperfect informa- tion has long been criticized as limiting the tion about a combination of the seller’s efforts, applicability of the theory, especially when ability, and luck. In these markets a seller’s competition is thought of as a dynamic process. reputation for quality therefore becomes a valu- (See, e.g., Friedrich A. Hayek, 1946; Joseph A. able asset. Schumpeter, 1950.) Indeed, the shortcomings of Since the seminal work of Benjamin Klein this approach are particularly clear when we and Keith B.
    [Show full text]