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

Jay Pil Choi, Martin Peitz

Research output: Contribution to journalArticle

1 Citation (Scopus)

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.

Original languageEnglish
Pages (from-to)351-379
Number of pages29
JournalInternational Journal of Industrial Organization
Volume61
DOIs
Publication statusPublished - 2018 Nov 1

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All Science Journal Classification (ASJC) codes

  • Industrial relations
  • Engineering (miscellaneous)
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management

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