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Reputation and Entry

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Author Info

  • Butler, Jeffrey

    ()
    (Einaudi Institute for Economics and Finance)

  • Carbone, Enrica

    ()
    (University of Naples "SUN")

  • Conzo, Pierluigi

    ()
    (University of Turin, Department of Economics)

  • Spagnolo, Giancarlo

    ()
    (Stockholm Institute of Transition Economics)

Abstract

This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, so that the concern is warranted, appropriately designed reputation mechanisms actually stimulate entry. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer.

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File URL: http://swopec.hhs.se/hasite/papers/hasite0021.pdf
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Bibliographic Info

Paper provided by Stockholm Institute of Transition Economics, Stockholm School of Economics in its series SITE Working Paper Series with number 21.

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Length: 50 pages
Date of creation: 25 Nov 2012
Date of revision:
Handle: RePEc:hhs:hasite:0021

Contact details of provider:
Postal: Stockholm Institute of Transition Economics, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Phone: (+46 8) 736 9670
Fax: (+46 8) 31 64 22
Web page: http://www.hhs.se/site/
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Related research

Keywords: Entry; Feedback mechanisms; Governance; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Participation; Past performance; Procurement; Quality; Reputation; Vendor rating;

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  1. Susan Athey & Dominic Coey & Jonathan Levin, 2013. "Set-Asides and Subsidies in Auctions," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 5(1), pages 1-27, February.
  2. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 101(2), pages 526-55, April.
  3. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  4. Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1151-69, September.
  5. Jeanette Brosig & Timo Heinrich, 2011. "Reputation and Mechanism Choice in Procurement Auctions – An Experiment," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0254, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, Econometric Society, vol. 56(1), pages 1-36, January.
  7. Iossa, Elisabetta & Spagnolo, Giancarlo, 2011. "Contracts as Threats: on a Rationale For Rewarding A while Hoping For B," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8195, C.E.P.R. Discussion Papers.
  8. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 70(279), pages 385-404, 08.
  9. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2004. "How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation," Management Science, INFORMS, INFORMS, vol. 50(11), pages 1587-1602, November.
  11. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 48(4), pages 431-444, August.
  12. Brandts, J. & Figueras, N., 1997. "An Exploration of Reputation Formation in Experimental Games," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 404.97, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Brit Grosskopf & Rajiv Sarin, 2010. "Is Reputation Good or Bad? An Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 100(5), pages 2187-2204, December.
  14. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects And The Limits Of Contracting: A Study Of The Indian Software Industry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(3), pages 989-1017, August.
  15. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7434, C.E.P.R. Discussion Papers.
  16. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(4), pages 615-41, August.
  17. Alessandro Innocenti & Chiara Rapallini, 2011. "Voting by Ballots and Feet in the Laboratory," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 70(1), pages 3-24, January.
  18. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(4), pages 659-79, November.
  19. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
  20. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
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