You Are Judged by the Company You Keep: Reputation Leverage in Vertically Related Markets

Jay Choi and Martin Peitz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

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 with 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–this constitutes a novel theory of downstream barriers to entry.

Keywords: Adverse Selection; Certification Intermediary; Incumbency Advantage; Barriers to Entry; Outsourcing; Branding (search for similar items in EconPapers)
JEL-codes: D4 L12 L4 L43 L51 L52 (search for similar items in EconPapers)
Pages: 39
Date: 2018-09
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (2)

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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 (2016)
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:bon:boncrc:crctr224_2018_042

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