ENTRANTS' REPUTATION AND INDUSTRY DYNAMICS

Bernardita Vial and Felipe Zurita

International Economic Review, 2017, vol. 58, issue 2, 529-559

Abstract: This article analyzes entry–exit decisions in a market where reputation determines the price that firms may charge, within a rational‐expectation model of competition in a nonatomic market under heterogeneous reputations. The analysis focuses on the class of name‐switching reputational equilibria, in which a firm discards its name if and only if its reputation falls below the entrants' reputation. The main technical result is the existence of a unique steady‐state equilibrium within this class, in which the entrants' reputation is endogenous. The resulting industry dynamics is largely on agreement with the findings in the empirical literature.

Date: 2017
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