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The benefit of collective reputation
Author(s) -
Neeman Zvika,
Öry Aniko,
Yu Jungju
Publication year - 2019
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12296
Subject(s) - temptation , reputation , incentive , quality (philosophy) , business , microeconomics , investment (military) , industrial organization , marketing , economics , psychology , social psychology , social science , philosophy , epistemology , sociology , politics , political science , law
We study a model of reputation with two long‐lived firms who operate under a collective brand or as two individual brands. Firms' investments in quality are unobserved and can only be sustained through reputational concerns. In a collective brand, consumers cannot distinguish between the two firms. In the long run, this generates incentives to free‐ride on the other firm's investment, but in the short run, it mitigates the temptation to milk a good reputation. The signal structure and consumers' prior beliefs determine which effect dominates. We interpret our findings in light of the type of industry in which the firms operate.