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Reputation and Entry

Listed author(s):
  • Jeffrey V. Butler

    ()

  • Enrica Carbone

    ()

  • Pierluigi Conzo

    ()

  • Giancarlo Spagnolo

    ()

This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We propose a procurement model with reputation and entry assigning to the entrant a reputational advantage of varying size across treatments. 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, appropriately designed reputation mechanisms actually stimulate it. 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://www.labsi.org/wp/labsi45.pdf
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Paper provided by University of Siena in its series Labsi Experimental Economics Laboratory University of Siena with number 045.

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Date of creation: Dec 2012
Handle: RePEc:usi:labsit:045
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  10. 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, Oxford University Press, vol. 115(3), pages 989-1017.
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  24. Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, vol. 60(5), pages 1151-1169, September.
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  26. John Morgan & Henrik Orzen & Martin Sefton & Dana Sisak, 2016. "Strategic and Natural Risk in Entrepreneurship: An Experimental Study," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 420-454, 04.
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