|Ph.D Student||Kohavi Yitzhak|
|Subject||Quality and Reputation in Dynamic Oligopoly: An Empirical|
Study of US Automobile Industry
|Department||Department of Industrial Engineering and Management||Supervisors||Professor Kim Moshe|
|Dr. Benjamin Bental|
This paper develops a method for empirically estimating the value of reputation and applies it to the US automobile market. The method is based on the dynamic decision process in which manufacturers choose costly quality. Consumers accumulate signals on that quality through the record of car recalls and interpret them to build reputation for quality.
After obtaining cost and demand parameters, the estimated value of reputation for 14 manufacturers over the 20 years period sample is computed. It is shown that the estimated values of reputation are highly correlated with the stock market value of these manufacturers. Moreover, since reputation in this paper acts as a signaling activity, it allows solving for different scenarios of quality signals. The effect of one such quality signal, auto recall, is estimated using the same model. The results shed light on some questions that arise in studies that estimated the equity loss due to recall announcements.