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American Economic Journal: Microeconomics: Vol. 3 No. 3 (August 2011)

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Can Warranties Substitute for Reputations?

Article Citation

Roberts, James W. 2011. "Can Warranties Substitute for Reputations?" American Economic Journal: Microeconomics, 3(3): 69-85.

DOI: 10.1257/mic.3.3.69

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)

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Authors

Roberts, James W. (Duke U)

JEL Classifications

D82: Asymmetric and Private Information
L14: Transactional Relationships; Contracts and Reputation; Networks
L15: Information and Product Quality; Standardization and Compatibility
L81: Retail and Wholesale Trade; e-Commerce
M31: Marketing

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