The Reasons for Reputation Mechanism Failure

Abstract

The word 'reputation', which is closely known in the social practice, is equal to renpin, koubei and credit (non-financial category) in Chinese language. From the perspective of Information Economics, reputation mechanism can be understood as the constraints for market participants which are committed by the probability of information transmission among the potential trading partners about when and Where some one did what. However, as an important assumption of repeated games and important guarantee of self-enforce contract, it often faces the dilemma of failure in practice. Recent problems such as food safety, fashion of overseas shopping and concerns over the quality of domestic products have all exposed the fragility of the market reputation mechanism in Chinese traditional industries to some extent. Therefore, finding out the reason for reputation failure is of great significance to society. From the point of reputation mechanism conditions, this article tries to find out what leads to reputation failure in practice, so as to put forward some thoughts for the improvement of reputation mechanism and market governance structure.