Bad reputation due to incompetent expert

This paper examines the impact of a recommender's career concerns on the long-term relationship with a consumer when the recommender has a private type in his expertise. An informed type's expertise is valuable for the consumer's ongoing purchasing decisions, whereas an uninformed type lacks such expertise and thus cannot mimic the informed type. I show that the uninformed type's reputation concerns never benefit the consumer and may lead to a complete market breakdown when they are sufficiently strong. Moreover, this “bad reputation” phenomenon arises even if the informed type is myopic and the consumer is long-lived. The analysis identifies the conditions under which this result holds and provides insights into the design of compensation schemes for recommenders.