Selling reputation when going out of business

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1213

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: General ; Transactional Relationships; Contracts and Reputation; Networks ; Information and Product Quality; Standardization and Compatibility ; Asymmetric and Private Information; Mechanism Design
• Subject: reputation ; ownership change ; intangible asset ; theory of the firm ; Übernahme ; Unternehmensnachfolge ; Firmenimage ; Ärzte ; Intangibles Gut ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hakenes, Hendrik ; Peitz, Martin
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/18852
• Last update: 10.03.2025, 11:45 AM CET