Reputation and Competition among Information Intermediaries

Abstract

This paper investigates the e§ect of competition on the reputation mechanism in the market for information intermediaries, such as rating agencies. I use a dynamic model to endogenize the value of reputation so as to enable comparison of equilibria under di§erent market structures. In the model, behavior is determined by weighing the current rating fee against the future value the rating agency derives from having a higher reputation. I show that competition worsens the quality of ratings by reducing the value of high reputation but not the short-term gain of cheating.