Template-Type: ReDIF-Paper 1.0
Title: You Are Judged by the Company You Keep:  Reputation Leverage in Vertically Related Markets 
Author-Name: Jay Pil Choi
Author-Email: choijay@msu.edu
Author-Name: Martin Peitz
Author-Email: Martin.Peitz@gmail.com
Classification-JEL: D4, L12, L4, L43, L51, L52
Keywords: Adverse Selection, Certification Intermediary, Incumbency Advantage, Barriers to Entry, Outsourcing, Branding

Abstract: This paper analyzes a mechanism through which a supplier of unknown quality can
overcome its asymmetric information problem by selling via a reputable downstream
firm. The supplier’s adverse-selection problem can be solved if the downstream firm has
established a reputation for delivering high quality with the supplier. The supplier may
enter the market by initially renting the downstream firm’s reputation. The downstream
firm may optimally source its input externally, even though sourcing internally would
be better in terms of productive efficiency. Since an entrant in the downstream market
may lack reputation, it may suffer from a reputational barrier to entry arising from
higher input costs–this constitutes a novel theory of downstream barriers to entry.

Note: 
Length: 39
Creation-Date: 2018-09
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp042
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2018_042