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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. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
  2. Hongbin Cai & Ichiro Obara, 2006. "Firm Reputation and Horizontanl Integration," Levine's Bibliography 321307000000000285, UCLA Department of Economics.
  3. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
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  7. 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.
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  9. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
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  15. Hitoshi Matsushima, 1998. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," CIRJE F-Series CIRJE-F-24, CIRJE, Faculty of Economics, University of Tokyo.
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  17. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  18. Dilip Abreu & David Pearce & Ennio Stacchetti, 1997. "Optimal Cartel Equilibria with Imperfect monitoring," Levine's Working Paper Archive 632, David K. Levine.
  19. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. John G. Riley, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 409-429.
  21. Arthur Fishman & Rafael Rob, 2002. "Is Bigger Better? Investing in Reputation," Penn CARESS Working Papers 40893328535d25cf3e69a981a, Penn Economics Department.
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  23. 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.
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  25. Rafael Rob & Tadashi Sekiguchi, 2006. "Reputation and turnover," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 341-361, 06.
  26. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
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