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ENTRANTS' REPUTATION AND INDUSTRY DYNAMICS
Author(s) -
Vial Bernardita,
Zurita Felipe
Publication year - 2017
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12226
Subject(s) - reputation , competition (biology) , microeconomics , economics , class (philosophy) , dynamics (music) , empirical evidence , incentive , industrial organization , business , computer science , ecology , social science , philosophy , physics , epistemology , artificial intelligence , sociology , acoustics , biology
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.