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Collective Reputation And Quality

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  • Winfree, Jason A.
  • McCluskey, Jill J.

Abstract

Firms who sell a regional or specialty product often share a common or collective reputation, which is based on the group's aggregate quality. The dynamic problem of collective reputation is similar to the natural resource extraction problems. Therefore, for the analysis of this particular problem, we use differential games. If there is unrestricted access to a common property resource (the reputation stock), agents perceive its shadow value to be zero and extract too rapidly; i.e, they all "cheat" on quality, "milking" the rents generated by the existence of the resource (reputation stock). We show that when there exists a collective product reputation without firm traceability, the firms will extract too much from the stock of reputation. A firm is said to "extract" reputation from the reputation stock when it sells low-quality products at high prices given by the high past levels of quality. The firm builds on the group's reputation when it provides a product with a quality level which is higher than the expected level of quality. The results from this work support minimum quality standards for producer groups and regional and specialty products. This is in contrast to the findings of previous work. Finally, the implications of these results are discussed as they relate to the case study of Washington apples. We present the case of Washington apples in light of the results of the analytical model.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2003 Annual meeting, July 27-30, Montreal, Canada with number 21927.

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Date of creation: 2003
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Handle: RePEc:ags:aaea03:21927

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Keywords: Agribusiness;

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References

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  1. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  2. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  3. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Maria Luz Loureiro & Jill J. McCluskey, 2000. "Assessing consumer response to protected geographical identification labeling," Agribusiness, John Wiley & Sons, Ltd., vol. 16(3), pages 309-320.
  5. Noe, Thomas H. & Rebello, Michael J., 1995. "Consumer activism, producer groups, and production standards," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 69-85, June.
  6. Kwamena K. Quagrainie & Jill J. McCluskey & Maria L. Loureiro, 2003. "A Latent Structure Approach to Measuring Reputation," Southern Economic Journal, Southern Economic Association, vol. 69(4), pages 966-977, April.
  7. Karp, Larry, 1992. "Social Welfare in a Common Property Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 353-72, May.
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