American Economic Journal: Microeconomics
no. 1, February 2023
I study how a firm manages its reputation by both investing in the quality of its product and censoring, hiding bad news from consumers. Without censorship, the threat of bad news provides strong incentives for investment. I highlight discontinuities in the firm's maximum equilibrium payoff that censorship creates. When censorship is inexpensive, the firm never invests and a patient firm's payoffs approach the lowest possible. In contrast, when censorship is moderately expensive, there exist equilibria where product quality is persistently high and payoffs approach the first-best, which can exceed the maximum equilibrium payoff if it was unable to censor.
Hauser, Daniel N.
"Censorship and Reputation."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Asymmetric and Private Information; Mechanism Design
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Information and Product Quality; Standardization and Compatibility