Alliances between competitors and consumer information
Alliances between competitors in which established firms provide access to proprietary resources, e.g. their distribution channels, are important business practices. We analyze a market where an established firm, firm A, produces a product of well-known quality, and a firm with an unknown brand, firm B, has to choose to produce high or low quality. Firm A observes firm B's quality choice but consumers do not. Hence, firm B is subject to a moral hazard problem which can potentially be solved by firm A. Firm A can accept or reject to form an alliance with firm B, which is observed by consumers. If an alliance is formed, firm A implicitly certifies the rival's product. Consumers infer that firm B is a competitor with high quality, as otherwise why would the established firm accept to form an alliance? The mechanism we discover allows for an economic interpretation of several types of business practices.
|Date of creation:|
|Date of revision:||01 2006|
|Publication status:||Forthcoming in Journal of the European Economic Association|
|Contact details of provider:|| Postal: Gallos - Rethymno 74100|
Phone: +30 831 77405
Fax: +30 831 77406
Web page: http://economics.soc.uoc.gr/
More information through EDIRC
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.:
- Carlin, Barbara A. & Dowling, Michael J. & Roering, William D. & Wyman, John & Kalinoglou, John & Clyburn, Greg, 1994. "Sleeping with the enemy: Doing business with a competitor," Business Horizons, Elsevier, vol. 37(5), pages 9-15.
- Paolo G. Garella & Martin Peitz, 2000.
"Intermediation Can Replace Certification,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 9(1), pages 1-24, 03.
- E. Kohlberg & J.-F. Mertens, 1998.
"On the Strategic Stability of Equilibria,"
Levine's Working Paper Archive
445, David K. Levine.
- Sean Nicholson, 2005.
"Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality,"
The Journal of Business,
University of Chicago Press, vol. 78(4), pages 1433-1464, July.
- Sean Nicholson & Patricia M. Danzon & Jeffrey S. McCullough, 2002. "Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality," NBER Working Papers 9007, National Bureau of Economic Research, Inc.
- Paolo Garella & Martin Peitz, "undated".
"Alliances between competitors and consumer information,"
0613, University of Crete, Department of Economics, revised 01 2006.
- Paolo G. Garella & Martin Peitz, 2007. "Alliances between Competitors and Consumer Information," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 823-845, 06.
- Paolo Giorgio GARELLA & Martin PEITZ, 2006. "Alliances between competitors and consumer information," Departmental Working Papers 2006-41, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December.
- Pashigian, B Peter & Gould, Eric D, 1998. "Internalizing Externalities: The Pricing of Space in Shopping Malls," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 115-142, April.
- Wujin Chu & Woosik Chu, 1994. "Signaling Quality by Selling Through a Reputable Retailer: An Example of Renting the Reputation of Another Agent," Marketing Science, INFORMS, vol. 13(2), pages 177-189.
- Bernard Garrette & Pierre Dussauge & W. Mitchell, 2004. "Asymmetric performance: the market share impact of scale and link alliances in the global auto industry," Post-Print hal-00458748, HAL.
- Gary Biglaiser & James W. Friedman, 1999. "Adverse Selection with Competitive Inspection," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 1-32, 03.
When requesting a correction, please mention this item's handle: RePEc:crt:wpaper:0613. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kostis Pigounakis)
If references are entirely missing, you can add them using this form.