Over the past ten years, the Big Three (General Motors, Ford, and Chrysler) have taken drastic steps to improve quality and reduce costs. Early evidence indicates that these steps have been successful in substantially narrowing the quality/cost gap between the Big Three and the Japanese. Despite these improvements, however, the public appears reluctant to relinquish past association with poor quality and fully incorporate these improvements in their expectations about the quality of domestic automobiles. / This dissertation examines the impact of reputation and changing beliefs on price, quantity traded, and total economic surplus in the market for used cars. Based on stylized facts about the U.S. auto industry, prior expectations are assumed to lie below the true probability that quality is high and are therefore interpreted as a vehicle's "reputation". Agents are assumed to combine these prior beliefs with recent news announcements according to Bayes rule. / Initially, an optimal stopping model is developed where supply is exogenous and agents decide each period between buying and waiting for the arrival of more information. In this representative agent framework, it is shown that a poor reputation postpones purchase decisions. Extending this model by including multiple agents with heterogeneous beliefs and allowing supply to be endogenous, a poor reputation is shown to lower price and retard its convergence to the full-information equilibrium. Moreover, the number of trades and the value of total economic surplus are also reduced. / Hypotheses about the existence of reputational effects are tested using used car price and quality data for the 1985-1990 model years. Variables based on past and current quality indicators proxy actual beliefs extant in the market and are interpreted as the prior and "news" arrival respectively. The empirical results support the existence of reputational effects in the U.S. market for used automobiles. Reputation is strongest for the earlier model years with contemporaneous news variables becoming significant in later years. This suggests that reputational effects arising from poor quality production in the early 1980's may be waning. / Source: Dissertation Abstracts International, Volume: 55-09, Section: A, page: 2940. / Major Professor: Gary M. Fournier. / Thesis (Ph.D.)--The Florida State University, 1994.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_77246 |
| Contributors | Nichols, Mark William., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 196 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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