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Reputation and Entry

  • Jeffrey V. Butler

    (EIEF)

  • Enrica Carbone

    (University of Naples "SUN")

  • Pierluigi Conzo

    (CSEF)

  • Giancarlo Spagnolo

    (Stockholm School of Economics-SITE, University of Rome "Tor Vergata" and CEPR)

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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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1215.

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Length: 50 pages
Date of creation: 2012
Date of revision: Nov 2012
Handle: RePEc:eie:wpaper:1215
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  1. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003. "How Effective are Electronic Reputation Mechanisms? An Experimental Investigation," Working Paper Series in Economics 3, University of Cologne, Department of Economics.
  2. Elisabetta Iossa & Giancarlo Spagnolo, 2009. "Contracts as Threats: on a Rationale For Rewarding A while Hoping For B," CEIS Research Paper 147, Tor Vergata University, CEIS, revised 30 Sep 2009.
  3. Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, vol. 60(5), pages 1151-69, September.
  4. 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, vol. 101(2), pages 526-55, April.
  5. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
  6. Susan Athey & Dominic Coey & Jonathan Levin, 2011. "Set-Asides and Subsidies in Auctions," NBER Working Papers 16851, National Bureau of Economic Research, Inc.
  7. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, vol. 70(279), pages 385-404, 08.
  8. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  9. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  10. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
  11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  12. 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, vol. 115(3), pages 989-1017, August.
  13. Brandts, Jordi & Figueras, Neus, 2003. "An exploration of reputation formation in experimental games," Journal of Economic Behavior & Organization, Elsevier, vol. 50(1), pages 89-115, January.
  14. 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.
  15. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
  16. Alessandro Innocenti & Chiara Rapallini, 2011. "Voting by Ballots and Feet in the Laboratory," Labsi Experimental Economics Laboratory University of Siena 036, University of Siena.
  17. Jeanette Brosig & Timo Heinrich, 2011. "Reputation and Mechanism Choice in Procurement Auctions – An Experiment," Ruhr Economic Papers 0254, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  18. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, vol. 56(1), pages 1-36, January.
  19. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
  20. Brit Grosskopf & Rajiv Sarin, 2010. "Is Reputation Good or Bad? An Experiment," American Economic Review, American Economic Association, vol. 100(5), pages 2187-2204, December.
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