Market size, firm size and reputation for quality

Arthur Fishman and Artyom Jelnov

Economics Letters, 2025, vol. 248, issue C

Abstract: We analyze the effect of firm’s size on firm’s ability to establish a reputation for quality. We consider markets in which consumers may be informed about a firm’s past quality through word of mouth referrals from past customers. In this setting consumers are more likely to become informed the greater the firm’s market share. This leads to a theory of equilibrium firm size which is consistent with findings that firm size increases with market size (Campbell and Hopenhayn, 2005) and the long tail hypothesis (Anderson, 2008).

Keywords: Firm size; Market size; Reputation for quality; Word of mouth referrals; Imperfect monitoring (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000412

DOI: 10.1016/j.econlet.2025.112204

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