Collective Reputation

Résumé

We study the extent to which a collective reputation negates the benefits from pooling reputations across different markets. Modelling reputation in an infinitely repeated hidden action game with imperfect monitoring, we show that pooling reputations is beneficial when reputation is not collective, whereas, due to a free-riding problem, it is suboptimal if reputation is fully collective. For intermediate degrees of collectivity, active revenue management mitigates free-riding. Thus, pooling reputations is beneficial if the degree of collectivity is low enough or the discount factor exceeds a cutoff. Results apply to franchising, umbrella branding, licensing, and firms with team production. (joint work with Roland Strausz)