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Can Warranties Substitute for Reputations?

Can Warranties Substitute for Reputations? Abstract In markets where product quality is imperfectly observed or delivery is uncertain, seller reputations and product guarantees or warranties can impact equilibrium prices and quantities. Using data from a decentralized online market, this paper empirically investigates the substitutability of product guarantees for seller reputation. I find that a “guaranteed or your money back” promise from the market maker does not substitute for reputation, either in determining price or the probability of sale. The most likely causes of the policy's ineffectiveness are delays in buyer response to the guarantee and skepticism about reimbursement in the event of fraud. (JEL D82, L14, L15, L81, M31 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Can Warranties Substitute for Reputations?

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Publisher
American Economic Association
Copyright
Copyright © 2011 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.3.3.69
Publisher site
See Article on Publisher Site

Abstract

Abstract In markets where product quality is imperfectly observed or delivery is uncertain, seller reputations and product guarantees or warranties can impact equilibrium prices and quantities. Using data from a decentralized online market, this paper empirically investigates the substitutability of product guarantees for seller reputation. I find that a “guaranteed or your money back” promise from the market maker does not substitute for reputation, either in determining price or the probability of sale. The most likely causes of the policy's ineffectiveness are delays in buyer response to the guarantee and skepticism about reimbursement in the event of fraud. (JEL D82, L14, L15, L81, M31 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Aug 1, 2011

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