ENTRANTS' REPUTATION AND INDUSTRY DYNAMICS |
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| Authors: | Bernardita Vial Felipe Zurita |
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| Institution: | 1. Pontificia Universidad Católica de Chile, Chile;2. Pontificia Universidad Católica de Chile, ChileWe are grateful to the editor Hanming Fang and the three anonymous referees for their careful revision and insightful comments. We are also grateful to Axel Anderson, Luís Cabral, Francesc Dilme, Juan Dubra, Mehmet Ekmekci, Juan Escobar, Hugo Hopenhayn, David K. Levine, César Martinelli, Steve Thompson, Rodrigo Wagner, and Federico Weinschelbaum, to conference participants at the Association for Public Economic Theory, the European and Latin American meetings of the Econometric Society, the European Association for Research in Industrial Economics annual conference, International Industrial Organization Conference, International Workshop of the Game Theory Society, Jornadas de Economa del Banco Central del Uruguay, Jornadas Latinoamericanas de Teoría Económica, Midwest Economic Theory Meetings, Sociedad de Economía de Chile, SING conference, World Congress of the Game Theory Society, and seminar participants at Universidad de Santiago, Universidad de Chile, and Pontificia Universidad Católica de Chile. Financial support from FONDECYT grant #1121096 is gratefully acknowledged. |
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| Abstract: | This article analyzes entry–exit decisions in a market where reputation determines the price that firms may charge, within a rational‐expectation model of competition in a nonatomic market under heterogeneous reputations. The analysis focuses on the class of name‐switching reputational equilibria, in which a firm discards its name if and only if its reputation falls below the entrants' reputation. The main technical result is the existence of a unique steady‐state equilibrium within this class, in which the entrants' reputation is endogenous. The resulting industry dynamics is largely on agreement with the findings in the empirical literature. |
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