‘A plague on both your houses’: why to preserve your rival reputation

ABSTRACT

Two firms produce a product that can be of high or low quality, which is not known to customers. One of the firms accuses another that it produces a low-quality product, while this information (or rumour) can be either true or not. Consumers believe rumours with some probability, but if they believe, they may also conclude that general quality in the market is low. I show that, as long as both firms stay in the market, the firm that spreads rumours is worse off relative to the case without rumours. Surprisingly, this holds even if consumers believe that this firm produces a high-quality product with certainty.

KEYWORDS:

• Reputation
• competition

JEL CLASSIFICATION:

• L10
• D21

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ https://euvsdisinfo.eu/eeas-special-report-update-short-assessment-of-narratives-and-disinformation-around-the-covid-19-pandemic-update-december-2020-april-2021/

² Competition among Pfizer, Moderna and Sputnik V vaccines may by anticipated in the future. However, currently Sputnik V is not approved in most Western countries.

³ See, for instance https://carnegieendowment.org/2021/08/03/russia-s-vaccine-diplomacy-is-mostly-smoke-and-mirrors-pub-85074.

⁴ This demand function is similar to one that appears in Tirole (1988, Chapter 7.5.1).

Additional information

Funding

The author(s) reported that there is no funding associated with the work featured in this article.