observable reputation trading is the reputation of a firm tradable when the change in ownership is observable we consider a competitive market in which a share of owners must retire in each period new owners bid for the firms that are for sale customers learn the owner s type which reflects the quality of the good or service provided through experience after observing an ownership change they may want to switch firm however in equilibrium good new owners buy from good old owners and retain high value customers hence reputation is a tradable intangible asset although ownership change is observable

umbrella branding with imperfect observability and moral hazard abstract in a framework of repeated purchase experience goods with seller s moral hazard and imperfect monitoring umbrella branding may improve the terms of the implicit contract between seller and buyers whereby the seller invests in quality and buyers pay a high price in some cases umbrella branding leads to a softer punishment of product failure which increases the seller s value in other cases umbrella branding leads to a harsher punishment of product failure which allows for a reputational equilibrium that would otherwise be impossible on the negative side under umbrella branding one bad signal may kill two revenue streams not one combining costs and benefits i determine the set of parameter values such that umbrella branding is an optimal strategy

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

preemptive r d rent dissipation and the leverage theory this paper provides a new perspective on the validity of the so called leverage theory in a model of preemptive innovation in systems markets i examine the effect of bundling on r d incentives i find that bundling provides a channel through which monopoly slack in one component market can be shifted to another with the effect of mitigating rent dissipation in the systems market bundling can be profitable if this beneficial effect of reduced rent dissipation outweighs the negative effect of intensified price competition after demonstrating the private optimality of bundling its welfare implications are considered finally the results can be reinterpreted to analyze the relationship between compatibility decisions and r d incentives in mix and match models

umbrella branding and external certification abstract in a market environment with random detection of product quality a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products alternatively a firm can rely on external certification of the quality of one or both of its products we characterize equilibria in which umbrella branding fully or partially substitutes for external certification we also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information namely whether information comes from external certification or from random detection

on the long run effects of fashion fashion changes but should a fashion last for even a moderate length of time so strong is the principle of inheritance that some effect will probably be impressed on the breed darwin c 1883 the variation of animals and plants under domestication p 231 i introduction fashion is thought as the tendency of consumers to prefer a variety design or brand of a good though it cannot be ranked higher than others in any intrinsically useful dimension in natural sciences darwin s observations suggest that fashion can have dramatic long lasting effects when revisited in the context of the industrial society these observations inspire two questions how does fashion influence the evolution of a product and how does this evolution feed back on the role of fashion moreover can the effects of fashion explain why some fashionable varieties survive while others lose popularity when fashion changes in this article we take a step toward answering these questions we examine the dynamic interaction between fashion and industry structure and how this interaction affects the relevance of fashion in the market for a product in the different stages of its life in our economy firms have two observable characteristics the quality of their production and the prestige of their variety brand both quality and prestige can take a high or a low value consistent with darwin s observations we assume that agents derive utility from quality but no direct or indirect benefit from prestigious varieties we interpret fashion as a norm such that when consumers choose between two varieties with the same quality but different prestige they opt for the most prestigious one in other words in our economy fashion is synonymous of brand loyalty that is the systematic tendency of consumers to be loyal to a variety or brand we analyze how fashion affects firms decisions in the merger market by influencing firm mergers fashion affects the evolution of the industry structure meant in our context as the distribution of characteristics across firms in turn the evolution of the industry structure feeds back on the relevance of fashion intuitively fashion lacks any intrinsic content and is only a norm for choosing among varieties or brands with the same quality as such its relevance changes as the set of consumption possibilities evolves with the industry structure the way fashion affects firm mergers is the following a fashionable low quality firm and an unfashionable high quality one have the incentive to merge with each other intuitively a low quality firm benefits from merging with a high quality firm because it participates to the current profits deriving from high quality production in turn a high quality unfashionable firm knows that if it faces the competition of a high quality fashionable firm it will not be chosen by consumers if this probability is high enough that is if the share of high quality fashionable firms is large enough this firm will prefer merging and foregoing part of its current profits by merging with a fashionable firm in fact it will potentially gain prestige and will overcome competition moreover whenever such a merger occurs with some probability the firm generated by the merger inherits both a high low prestige and a high low quality of production therefore over time the merging process induced by fashion modifies the distribution of attributes industry structure which in turn feeds back on the relevance of fashion we characterize the dynamics of the relevance of fashion in two cases in a first more general case we allow firms prestige to decay at an exogenous rate in this case the dynamics of fashion is driven jointly by firm mergers and by the decay of prestige the dynamics turns out to be potentially quite rich though fashion loses relevance in the long run for some values of the rate of decay it can exhibit periods of rising importance followed by periods of declining importance

firm reputation and incentives to milk pending patents abstract in this paper we develop a theory of patenting in which a firm preserves its reputation by only applying for a patent whenever a truly patentable idea has been generated firms have a short run incentive to deviate and receive additional rents from unworthy pending patents as well as potential rents from pto mistakes in granting patents we provide conditions for reputation to be preserved in equilibrium and analyze which market environments are favorable for such an equilibrium to exist in particular we analyze the merits of different patent systems

information and the skewness of music sales this paper studies the role of product discovery in the demand for recorded music we show that releasing a new album causes a substantial and permanent increase in sales of the artist s old albums especially if the new release is a hit patterns in these backward spillovers suggest that they result from consumers discovering the artist upon hearing the new release to explore the implications of consumers incomplete information we estimate a simple learning based model of market demand our results imply that the distribution of sales is substantially more skewed than it would be if consumers were more fully informed

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

the spanish beef sector in the 1990s impact of the bse crisis on efficiency and profitability the beef sector has undergone a series of changes as a result of successive food scares and agricultural policy reforms the purpose of the paper is to analyse technical efficiency and profitability in spanish livestock enterprises during the 1990s focusing on the possible impact of the bse crisis and the 1992 cap reform on each of these variables the main findings reveal the existence of technical inefficiency during the sample period some factors have a positive impact others a negative impact on efficiency as far as the effects of cap reform and the bse crisis are concerned the results show the ineffectiveness of agricultural policy regulation to promote efficiency in the sector and the improvement in the efficiency as a consequence of the bse crisis the profitability analysis reveals the importance of direct subsidies however in their absence a large percentage of holdings is unable to remunerate either own or rented factors analysis shows therefore that there are two counteracting effec

provision of environmental output within a multi output distance function approach this paper redefines technical efficiency by incorporating provision of environmental goods as one of the outputs of the farm the proportion of permanent and rough grassland to total agricultural land area is used as a proxy for the provision of environmental goods stochastic frontier analysis was conducted using a bayesian procedure the methodology is applied to panel data on 215 dairy farms in england and wales results show that farm efficiency rankings change when provision of environmental outputs by farms is incorporated in the efficiency analysis which may have important political implications

to brand or not to brand a theoretical and empirical question a firm s brand name is a valuable asset that can greatly enhance the demand for its products this fact is widely recognized in both the economics and marketing literatures surprisingly though little rigorous analysis has been devoted by either of these literatures to the question of when a firm will identify one of its new products with an established brand name it is on this question that our research is focused the economics literature in this general area has focused on issues that are related to but quite distinct from the issue we examine the traditional industrial organization literature discusses and attempts to capture empirically the relationships among advertising brand names and market power for some representative work we develop and test a model that predicts 1 whether a multiproduct firm will brand a new product with the established company name and 2 where the new product will be located in relation to the reputation estabished by the firm in other markets hotelling s 1929 model of spatial location serves as the basis for our theoretical investigation however we extend hotelling s model to the case of experience goods whose qualities can only be known with certainty after the product is purchased and consumed the logic that underlies our model is tested on a sample of firms from the u s liquor industry we employ a mixed logit approach to capture the simultaneous decisions that are made by the firms in our sample the views expressed in this paper are our own and not necessarily those of the bell system we are grateful to 0 gur arie the michigan liquor control commission peter ochshorn and srinivasan balakrishnan for valuable assistance with data collection and programming and to the national science foundation for support through grant ist 8315690 the helpful comments of roger klein pablo spiller and an anonymous referee are also gratefully acknowledged any errors are of course our responsibility

what s in a sign trademark law and economic theory the aim of this paper is to summarize the extant theory as it relates to the economics of trademark and to give some suggestions for further research with reference to distinct streams of literature the proposed line of study inevitably looks at the complex relationship between signs and economics copyright 2006 the authors journal compilation 2006 blackwell publishing ltd

an analysis of uk policies for domestic energy reduction using an agent based tool this paper introduces a new agent based model which incorporates the actions of individual homeowners in a long term domestic stock model and details how it was applied in energy policy analysis the results indicate that current policies are likely to fall significantly short of the 80 target and suggest that current subsidy levels need re examining in the model current subsidy levels appear to offer too much support to some technologies which in turn leads to the suppression of other technologies that have a greater energy saving potential the model can be used by policy makers to develop further scenarios to find alternative more effective sets of policy measures the model is currently limited to the owner occupied stock in england although it can be expanded subject to the availability of data

product quality reputation and market structure in a repeated game in which firms simultaneously choose price and product quality but quality is observed only after consumption takes place equilibria exhibiting high quality may exist in oligopoly markets even when the low quality one is a unique equilibrium outcome in monopoly and competitive markets oligopolists can sustain high quality through the threat of both a loss of reputation and a breakdown in tacit collusion while we abstract from other reasons that market structure might affect product quality we show that the inverted u shaped relationship between feasible quality and market structure is robust to several generalizations of the model the relationship between market structure and product quality is an important and widely studied part of the theoretical industrial organization literature going back to schumpeter s 1942 work on the relationship between innovation and market structure and including the seminal work of swan 1972 on market power and product durability we contribute a small but important insight to this debate by asking how market structure influences the incentives to provide high quality product when quality is unobservable that is when the products sold are experience goods and when firms can tacitly collude theoretically higher margins give stronger incentives to sustain a reputation for high quality and they encourage firms to increase product quality in order to steal business from rivals this is also true empirically in the airline industry deregulation led to lower prices and a reduction in service quality 2 on the other hand competition encourages firms to protect their market share by competing in product quality in general monopolists have higher margins but face less of a threat from competition whereas firms in competitive markets have lower margins and face a greater threat from competition in between are the oligopoly markets firms in oligopoly markets may enjoy high margins because of tacit collusion and face a strong threat from competition which suggests product quality might be highest in imperfectly competitive markets this article considers a repeated gamemodelofpricingandproductqualitychoiceinwhichmarketstructurehasanonmonotone impact on firms ability to maintain reputation for high quality high quality is more likely to be an equilibrium in oligopoly markets than in either monopoly or competitive markets empirical evidence on the relationship between market structure and quality is mixed mazzeo 2003 finds that on time performance increases dramatically when a second nonstop carrier serves a route domberger and sherr 1989 find that the british government s liberalization of the conveyancing monopoly in 1984 led to improvement in quality of conveyancing services in england and wales these article are consistent with our model in that

efficiency in new zealand sheep and beef farming the impacts of regulatory reform in this study we consider the impacts of dramatic regulatory reform during the 1980s on the efficiency of farms in new zealand using unbalanced panel data a translog distance function representing the multiple output and input technology and incorporating nonneutral regulatory impacts is used for the analysis determinants of technical inefficiency including a regulatory variable a time term and a debt equity ratio are also incorporated in a one step model estimated by maximum likelihood stochastic production frontier methods we find evidence of regulatory induced changes in output composition toward beef and deer and away from wool and especially lamb but little associated technical inefficiency these patterns motivated investment in complementary capital land and beef deer livestock inputs firms that were more flexible in their adaptation toward these new mixes adjusted to regulatory changes with less upheaval so any existing inefficiency appears linked to debt equity levels

what s in a name what leads a firm to change its name and what the new name foreshadows abstract this paper examines corporate name changes this paper connects different types of corporate name changes to the reputational concerns that precede them and to the important corporate events and performance changes that follow them the empirical results suggest that a firm adopts a radically different name to disassociate from a poor reputation the name of one of its well recognized brands to associate with a good reputation or a minor change in its name by adding or deleting a part of its name that identifies it with a particular product to accompany a narrower business focus or a broader business focus the empirical results also suggest that except for radical name changes significant organizational upheaval follows most corporate name changes the strength of the firm s subsequent economic performance is tied to changes in the business direction that the type of name change foreshadows

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

a strategic motivation for commodity bundling the analytical literature on commodity bundling explains the practice of selling two or more differentiated products in a single package as a surrogate for direct price discrimination in contrast this paper shows that imperfect competition creates a strategic incentive to bundle the profitability of bundling whether it adversely affects rival producers and whether it yields an overall efficiency gain depends inter alia on the nature of product market competition the role of complementarity in explaining why firms bundle is also explored copyright 1990 by blackwell publishing ltd

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

warranties durability and maintenance two sided moral hazard in a continuous time model double moral hazard in continuous time generates the familiar warranty pattern with full coverage for an initial block of time the more complete the warranty the better the producer s durability incentives and the worse the consumer s maintenance incentives using continuous time highlights the need for some warranty bound to avoid reaching the first best as an unreasonable limit early in the paper an exogenous bound is used while later the bound arises endogenously from the possibility of abuse and repair a quadratic example shows that the warranty s duration depends on the relative severity of the two moral hazard problems

the boundaries of firms as information barriers when contracts are incomplete the property rights theory of firms suggests that ownership of physical assets provides better outside options which in turn strengthen the owner s incentives to invest in the enterprise this approach is less suitable for human capital firms such as management consulting that lack physical assets this article develops an alternative theory for integration that sheds light on the boundaries of human capital firms in particular when a relationship between parties includes large potential externalities reducing the outside option of each party will be beneficial integration provides this reduction by blurring the contribution of individual parties within the firm and thus lowering their independent market valuation unlike some results in the property rights literature the results here are robust to variations in ex post bargaining solution

brand extension as informational leverage the marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well established brands have an advantage in introducing new products this paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good s reputation in one market to alleviate the problem of informational asymmetry encountered in other markets it is shown that brand extension helps a multi product monopolist introduce a new experience good with less price distortion thus the paper provides a theoretical foundation for the concept of brand capital

appropriating signs and meaning the elusive economics of trademark this paper deals with economic analysis of trademark its presence in markets is originally connected with the problem of information asymmetries and the need to provide information for assisting exchanges so as to avert the market failure brought about by adverse selection however this information conveying function is also accompanied by a differentiation effect arising from the power of persuasion that signs can exert on individuals the exploitation of differentiation has given rise to the practice of branding which ties markets and consumption to the realms of meaning and experience branding is so all pervasive in today s economy as to have somehow transfigured it so that the role of persuasion is now pre eminent nonetheless the mainstream economic theory tends to resist acknowledging this change which would to a large extent call into question well established hypotheses and theoretical tools the general response has therefore been to assume that the informational role of trademark predominates and to use this hypothesis to construct models welfare evaluations and policy prescriptions that bear little or no relation to the actual markets the opposing approach in the shadow of the nelson s and arrow s seminal papers on economics of information is recognising the idiosyncratic character of information and therefore drawing conclusions and devising solutions that while still based upon the welfare criterion also incorporate a wider awareness and a deeper representation of the scenario under study the present work attempts to move in this direction showing how different disciplines can provide some key epistemological tools for enabling economists to effectively evaluate the welfare outcomes of the introduction and progressive alteration of a particular intellectual property right within the realm of signs and meanings

multi product bargaining bundling and buyer power abstract we re consider the bilateral bargaining problem of a multi product manufacturer retailer trading relationship o brien and shaffer 2005 have shown that the unbundling of contracts leads to downward distorted production levels if seller power is strong while otherwise the joint profit maximizing quantities are contracted which is also always the case when bundling contracts are feasible we show that the unbundling of contracts also leads to downward distorted output levels when the buyer firm has sufficient nash bargaining power i e buyer power our result is driven by cost substitutability diseconomies of scope

collective reputation social norms and participation this paper analyzes a repeated games model of collective reputation with imperfect public monitoring and perfect local peer monitoring of efforts even when peer monitoring is local firms may achieve higher profits under collective reputation by decreasing the cost of maintaining customers trust the optimal number of firms that share a common reputation is greater when 1 trades are more frequent and public information is disseminated more rapidly 2 the deviation gain is smaller compared to the quality premium 3 customers information regarding firms quality is more precise or 4 intragroup information about firms quality is more global from a positive perspective we suggest how social norms can influence the reputation of regional products we also offer an efficiency explanation for food scares from a normative point of view in our model protection of geographical indications increases and mandatory traceability decreases welfare and incentives to provide quality without taking into account direct implementation costs copyright 2012 oxford university press

can brand extension signal product quality this paper asks whether brand extension can serve as a signal of product quality given that it costs less than a new brand existing literature has assumed either that brand extension is cost neutral or that it costs more i show that it can as a perfect bayesian equilibrium but the argument is unconvincing for one thing the separating equilibrium is not unique a pooling equilibrium also exists in which brand extension signals nothing for another the separating equilibrium relies on off equilibrium beliefs that are poorly motivated in the model i propose a refinement of the perfect bayesian equilibrium that resolves both issues empirical off equilibrium beliefs require that consumers off equilibrium beliefs be justifiable on the basis of their prior beliefs and product performance observations with empirical off equilibrium beliefs two necessary conditions for brand extension to signal product quality are identified i consumers must perceive old and new products of the firm to be positively correlated in quality and ii at least some consumers must identify with brands and not the firm behind the brands even with these conditions in place the signaling argument is fragile firm observability of past performance diminishes brand extension s signaling capability an arbitrarily small probability of failure for good products eliminates it my results suggest that going forward the case for brand extension must rest on foundations other than signaling product quality

umbrella branding as a signal of new product quality an example of signalling by posting a bond i present a signalling model in which a multiproduct firm can use its reputation as a bond for quality by using a brand name for an established product when it introduces a new experience good as out of equilibrium beliefs are specified a false signal may be taken to imply that both the established and the new product are of low quality in contrast the absence of a signal leaves open the possibility that one of the two products is of high quality hence the signal can be credible without excessive sunk costs as long as the bond posted is sufficiently large

optimal export policy for a new product monopoly a new welfare enhancing role is identified for a policy of export subsidization in a new product industry an export subsidy policy promotes the rational perception that a high quality export can be provided at a relatively low price thus an export subsidy generates a first order benefit to welfare by enabling a high quality export to be sold at a less distorted high price the subsidy will also introduce

bundling new products with old to signal quality with application to the sequencing of new products abstract this paper provides a new rationale for bundling based on informational leverage bundling a product of established quality to one of unknown quality can mitigate the problem of asymmetric information encountered in the latter market leveraging reputation in one market into another has implications for the timing of new product introductions bundling motivated by informational leverage enhances efficiency by increasing consumer s access to costly information when the possibility of endogenous timing of product introduction is considered however the welfare consequences of bundling are ambiguous the positive effect of market creation must be weighed against the negative effect of market delay