You are judged by the company you keep: reputation leverage in vertically related markets

No 16-07, Working Papers from University of Mannheim, Department of Economics

Abstract: This paper analyzes a mechanism through which a supplier of unknown quality can overcome its asymmetric information problem by selling via a reputable downstream firm. The supplier`s adverse-selection problem can be solved if the downstream firm has established a reputation for delivering high quality vis-à-vis the supplier. The supplier may enter the market by initially renting the downstream firm`s reputation. The downstream firm may optimally source its input externally, even though sourcing internally would be better in terms of productive efficiency. Since an entrant in the downstream market may lack reputation, it may suffer from a reputational barrier to entry arising from higher input costs.

Keywords: Adverse Selection; Certification Intermediaries; Incumbency Advantage; Experience Goods; Outsourcing; Branding; Barriers to Entry (search for similar items in EconPapers)
JEL-codes: D4 L12 L4 L43 L51 L52 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-ind, nep-ipr and nep-mic
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https://madoc.bib.uni-mannheim.de/40560/1/Choi%20und%20Peitz%2016-07.pdf

Related works:
Journal Article: You are judged by the company you keep: Reputation leverage in vertically related markets (2018)
Working Paper: You Are Judged by the Company You Keep: Reputation Leverage in Vertically Related Markets (2018)
Working Paper: You Are Judged by the Company You Keep: Reputation Leverage in Vertically Related Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:wpaper:40560

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