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Firm reputation and horizontal integration

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Author Info
Hongbin Cai
Ichiro Obara

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Abstract

We study effects of horizontal integration on firm reputation in an environment where customers observe only imperfect signals about firms' effort/quality choices. Horizontal integration leads to a larger market base for the merged firm, and thus helps reputation building with more effective punishments and better monitoring by eliminating idiosyncratic shocks of individual markets. But it allows the merged firm to deviate only in a subset of markets, which hinders reputation building by making it more difficult for consumers to monitor its quality. We show that these effects give rise to a reputation-based theory of the optimal firm size and derive its comparative statics. Copyright (c) 2009, RAND.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2009.00068.x
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Publisher Info
Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 40 (2009)
Issue (Month): 2 ()
Pages: 340-363
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Handle: RePEc:bla:randje:v:40:y:2009:i:2:p:340-363

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June. [Downloadable!] (restricted)
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  5. Arthur Fishman & Rafael Rob, 2002. "Is Bigger Better? Investing in Reputation," Penn CARESS Working Papers 40893328535d25cf3e69a981a, Penn Economics Department. [Downloadable!]
  6. Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998. "Collusion and Price Rigidity," Working papers 98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Cabral, L.M.B., 2000. "Stretching Firm and Brand Reputation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 00-07, New York University, Leonard N. Stern School of Business-.
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  8. George J. Mailath & Larry Samuelson, . ""Who Wants a Good Reputation?''," CARESS Working Papres 98-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  9. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August. [Downloadable!] (restricted)
  10. Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-33, November. [Downloadable!] (restricted)
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  11. Rafael Rob & Tadashi Sekiguchi, 2004. "Reputation and Turnover," KIER Working Papers 594, Kyoto University, Institute of Economic Research.
  12. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine. [Downloadable!]
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  13. Riley, John G, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Blackwell Publishing, vol. 55(3), pages 409-29, July. [Downloadable!] (restricted)
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  14. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August. [Downloadable!] (restricted)
  15. Holmstrom, Bengt & Roberts, John, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall. [Downloadable!] (restricted)
  16. Johannes Horner, 2002. "Reputation and Competition," American Economic Review, American Economic Association, vol. 92(3), pages 644-663, June. [Downloadable!]
  17. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  18. Rafael Rob & Tadashi Sekiguchi, 2004. "Reputation and Turnover," PIER Working Paper Archive 04-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  19. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  20. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May. [Downloadable!] (restricted)
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  21. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring. [Downloadable!] (restricted)
  22. Hongbin Cai & Ichiro Obara, 2008. "Firm Reputation and Horizontal Integration," Levine's Bibliography 122247000000002038, UCLA Department of Economics. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hendrik Hakenes & Martin Peitz, 2008. "Umbrella Branding and External Certification," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_10, Max Planck Institute for Research on Collective Goods. [Downloadable!]
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  2. Heski Bar-Isaac & Juanjo Ganuza, 2005. "Teaching to the top and searching for superstars," Working Papers 05-06, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  3. Hongbin Cai & Ichiro Obara, 2006. "Firm Reputation and Horizontanl Integration," Levine's Bibliography 321307000000000285, UCLA Department of Economics. [Downloadable!]
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