Resource title

Selling reputation when going out of business

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Resource description

Is the reputation of a firm tradeable when the previous owner has to retire even though ownership change is observable? We consider a competitive market in which a share of owners must retire in each period. New owners, observing only recent profits, bid for the firms on sale. Customers are concerned with the owners? type, which reflects the quality of the good or service provided. When a customer observes an ownership change, he may have an incentive to switch to a different firm even if his past experience was good. However, we show that, in equilibrium, customers believe that also the new owner is of the good type. Hence reputation is tradeable, although ownership change is observable. In our model, reputation is an intangible asset, embodied in an attractive customer base. Firms owned by a good type sell at a premium.

Resource author

Hendrik Hakenes, Martin Peitz

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18852

Resource license

Adapt according to the presented license agreement and reference the original author.