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URL:
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https://ub-madoc.bib.uni-mannheim.de/40560
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URN:
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urn:nbn:de:bsz:180-madoc-405603
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Document Type:
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Working paper
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Year of publication:
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2016
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The title of a journal, publication series:
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Working Paper Series
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Volume:
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16-07
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Place of publication:
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Mannheim
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Publication language:
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English
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Institution:
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School of Law and Economics > VWL, Industrieökonomik, Wettbewerbspolitik u. Regulierung (Peitz 2007-)
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MADOC publication series:
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Department of Economics > Working Paper Series
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Subject:
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330 Economics
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Classification:
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JEL:
D4 , L12 , L4 , L43 , L51 , L52,
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Keywords (English):
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Adverse Selection , Certification Intermediaries , Incumbency Advantage , Experience Goods , Outsourcing , Branding , Barriers to Entry
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Abstract:
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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 vis-à-vis 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.
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Working Paper Series
Mannheim
16-07
[Working paper]
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