Diminishing Returns From Reputation: Do Followers Have a Competitive Advantage?

Tomasz Obloj and Krzysztof Obloj
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Tomasz Obloj: INSEAD - Institut Européen d'administration des Affaires
Krzysztof Obloj: Search Management - UW - Uniwersytet Warszawski [Polska] = University of Warsaw [Poland] = Université de Varsovie [Pologne]

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Abstract: The paper addresses the value of reputation as a strategic, intangible resource. We hypothesize that a high reputation of an exchange partner will result in the ability to command a premium price during a transaction because it lowers the transaction costs of the other party. We also hypothesize that the smaller the differences in the level of reputation of competing parties, the more valuable a unit of reputation becomes. We test these hypotheses by empirical analysis of pairs of transactions on the Polish electronic exchange Allegro. Our analysis shows that if the differences in the levels of reputation decrease, the value of a unit of difference increases. We also extrapolate the results of our research into a more general model that shows the conditions in which a strategy based on high reputation (price premium per unit of reputation) is the most effective one and indicates the process of reputation development by stimulating the dynamics of leader and follower behavior.

Keywords: diminishing returns; reputation; competitive advantage (search for similar items in EconPapers)
Date: 2006-12-01
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Citations: View citations in EconPapers (3)

Published in Corporate Reputation Review, 2006, 9, pp. 213-224. ⟨10.1057/palgrave.crr.1550029⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00623906

DOI: 10.1057/palgrave.crr.1550029

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