Recovering from a bad reputation : changing beliefs about the quality of

Acquiring a reputation for high quality is especially urgent for producers in markets for durable goods with quality characteristics that remain uncertain over the product’s life. Using data from the U.S. automobile industry, our empirical evidence shows that a poor reputation associated with U.S. autos during the early 1980’s has persisted in reducing prices of more recent models, despite quality improvements. As of 1990, used cars in the U.S. were still discounted five percent on average relative to their Japanese counterparts. However, models with the strongest improvement in reported vehicle quality have bridged the gap somewhat in resale value.  1999 Elsevier Science B.V. All rights reserved.