question about reputation

[solman at MIT.EDU]

Wei wrote:

|> In an economy based on positive reputations, how does one acquire a 
|> reputation capital?  One way may be to initially perform services at a 
|> price below cost, but this has some problems.

|> For example, Alice starts a anonymous consulting service, and announces 
|> that she will answer the first ten queries for free.  Upon hearing this, 
|> Mallet immediately starts another consulting service, and announces the 
|> same offer.  At this point Mallet can simply forward his customers' 
|> queries to Alice and Alice's answers back to his customers.  Thus, he gains 
|> reputation at no cost.

A) There is a real cost (some combination of reputation and other capital)
   involved in attracting customers.

B) This is emphatically _not_ an "abuse" of reputation capital. Mallet will
   acquire a reputation based on the quality of the service he provides.
   Suppose that Bob also set up a service like Alice. Some people would
   go directly to Alice, some to Bob, and some to Mallet who chooses
   which ever of Alice and Bob offers the best deal for the customer.
   By choosing intelligently, Mallet could acquire a better reputation
   than either Alice or Bob. This would not be inaccurate. By using Mallet,
   (now a consulting services broker) the customers are geting a better deal.
   (i.e. MAX(A(x),B(x)) is greater than or equal to both A(x) and B(x)).

JWS