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Firm Reputation and Horizontanl Integration

  • Hongbin Cai
  • Ichiro Obara

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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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000285.

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Date of creation: 11 Aug 2006
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Handle: RePEc:cla:levrem:321307000000000285
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  1. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  2. 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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  4. Dilip Abreu & Paul Milgrom & David Pearce, 1997. "Information and timing in repeated partnerships," Levine's Working Paper Archive 636, David K. Levine.
  5. Hongbin Cai & Ichiro Obara, 2006. "Firm Reputation and Horizontanl Integration," Levine's Bibliography 321307000000000285, UCLA Department of Economics.
  6. Hitoshi Matsushima, 1998. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," CIRJE F-Series CIRJE-F-24, CIRJE, Faculty of Economics, University of Tokyo.
  7. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  8. Cabral, L.M.B., 2001. "Optimal Brand Umbrella Size," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-06, New York University, Leonard N. Stern School of Business-.
  9. 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-.
  10. Rafael Rob & Tadashi Sekiguchi, 2006. "Reputation and turnover," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 341-361, 06.
  11. Dilip Abreu & David Pearce & Ennio Stacchetti, 1997. "Optimal Cartel Equilibria with Imperfect monitoring," Levine's Working Paper Archive 632, David K. Levine.
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  13. Johannes H�rner, 2002. "Reputation and Competition," American Economic Review, American Economic Association, vol. 92(3), pages 644-663, June.
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  16. Rafael Rob, 2004. "Is Bigger Better? Investing in Reputation," Theory workshop papers 658612000000000086, UCLA Department of Economics.
  17. Radner, Roy, 1985. "Repeated Principal-Agent Games with Discounting," Econometrica, Econometric Society, vol. 53(5), pages 1173-98, September.
  18. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2002. "Collusion and price rigidity," Discussion Papers 0102-38, Columbia University, Department of Economics.
  19. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  20. Riley, John G, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 409-29, July.
  21. 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.
  22. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-67, February.
  23. 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.
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  25. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
  26. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation? Erratum," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 714, July.
  27. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
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