Johannes Hörner

Reputation and Competition

This paper shows how competition generates reputation-building behavior in repeated interactions when the product quality observed by consumers is a noisy signal of firms effort level. There are two types of firms and good firms try to distinguish themselves from bad firms. Although consumers get convinced that firms which are repeatedly successful in providing high quality are good firms, competition endogenously generates the outside option inducing disappointed consumers to leave firms. This threat of exit induces good firms to choose high effort, allowing good reputations to be valuable, but its uncompromising execution forces good firms out of the market. (JEL C7, D8)

A Perpetual Race to Stay Ahead

This paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity. The state of competition—measured by the difference between the number of innovations introduced by the firms—evolves stochastically according to their effort level. The structure of Markov perfect equilibria is identified. It is generally not true that competition is fiercest when firms are closest. Rather, firms invest under two distinct circumstances: while sufficiently ahead, to outstrip their rival and secure a durable leadership; while behind, to regain leadership and prevent the situation from worsening to the point where their rival outstrips them. Copyright 2004, Wiley-Blackwell.

Belief-Free Equilibria in Games With Incomplete Information

We characterize belief-free equilibria in infinitely repeated games with incom- plete information with an arbitrary number of players and arbitrary information structures. This generalizes Horner and Lovo (2008), which restrict attention to the two-player case and to information structures that have a product structure. Our characterization requires introducing a new type of individual rational constraint that links the lowest possible equilibrium payoffs across players. As in the two- player case, our characterization is tight: we define a set of payoffs that contains all the belief-free equilibrium payoffs; conversely, any point in the interior of this set is a belief-free equilibrium payoff vector when players are sufficiently patient.

What's in the dictionary (or Is It?)*

Abstract We develop a formal framework in which to study dictionaries satisfying a seemingly desirable property. A dictionary is said to be closed if every word used in that definition is itself defined (elsewhere in the dictionary). We show that any closed dictionary is degenerate: all words have the same meaning. Implications of this result are discussed, as well as potential remedies.