Reputation Building under Observational Learning

Abstract A patient seller interacts with a sequence of myopic consumers. Each period, the chooses quality his product, and consumer decides whether to trust after she observes seller’s actions in last $K$ periods (limited memory) at least one previous consumer’s action (observational learning). However, cannot observe current period. With positive probability, is commitment type who plays Stackelberg every I show that under limited memory observational learning, consumers are concerned will not play when he has reputation lost reputation. Such concern leads equilibria where receives low payoff from building also my failure result hinges on consumers’ learning.