Reputation deters defection only if defections are publicly verifiable, which is often impossible.

Evidence

But let us consider the conditions necessary for reputation effects to deter defection, here defined as violating the implicit terms of the partnership relation: 1 Common knowledge: all defections have to be made public. This does not simply mean a public announcement. It has to be possible to distinguish between real and bogus claims, to know who really was the offending party. This is frequently impossible. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2608

Categorization

• XREF: The ‘distinguish real from bogus claims’ condition is the information problem behind all trust systems—analogous to why Luhmann’s familiarity requires observable behavior. Also connects to Milgrom’s law-merchant private judges who verified reputations.