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Consider the following statements about asymmetric information and repeated games: (I) If consumers cannot fully observe the quality of the goods, firms might profit from
Consider the following statements about asymmetric information and repeated games: (I) If consumers cannot fully observe the quality of the goods, firms might profit from selling high-quality goods that cost more, if they have a reputation and consumers trust them. This strategy can be justified with a model of repeated interactions: the short-run benefits of misleading customers are smaller than long-run benefits associated with being able to sell at a higher price. (II) Job applicants may not always know how good it is to work at different firms (is the boss a decent human being? Is the environment non-discriminatory?). Some firms build reputations as good places to work, a strategy can be justified with a model of repeated interactions. This is only optimal from a profit-maximizing perspective if the costs of maintaining the good environment (for example, being willing to fire abusive employees) are not too large relative to the benefits of being able to hire talent more easily. (III) Reputation-building is not a phenomenon that can be studied using economic methods
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