Collective Reputation and Quality

Abstract

Firms who sell a regional or specialty product often share a common or collective reputation, which is based on the group's aggregate quality. The dynamic problem of collective reputation is similar to the natural resource extraction problems. Therefore, for the analysis of this particular problem, we use differential games. If there is unrestricted access to a common property resource (the reputation stock), agents perceive its shadow value to be zero and extract too rapidly; i.e, they all "cheat" on quality, "milking" the rents generated by the existence of the resource (reputation stock). We show that when there exists a collective product reputation without firm traceability, the firms will extract too much from the stock of reputation. A firm is said to "extract" reputation from the reputation stock when it sells low-quality products at high prices given by the high past levels of quality. The firm builds on the group's reputation when it provides a product with a quality level which is higher than the expected level of quality. The results from this work support minimum quality standards for producer groups and regional and specialty products. This is in contrast to the findings of previous work. Finally, the implications of these results are discussed as they relate to the case study of Washington apples.

Reputation and Cooperation in Defence

“…For example, show that the existence of a small proportion of cooperative types allows self-interested actors to cooperate in Prisoner's Dilemma setups. More recently, Tirole (1996) developed a theory of collective reputation, constructed as an aggregate of the reputation of individuals overlapping generations (see also, e.g., Bar-Isaac, 2007;Winfree and McCluskey, 2005). Healy (2007) has shown how collective reputation can build up among individuals who are only connected by their shared reputation through anonymous rematching.…”

Investments in Quality, Collective Reputation and Information Acquisition

“…Tirole (1996) first investigated collective reputation in the context of worker matching. It has since been applied in many fields, notably trade in agricultural commodities and other products that are not easily distinguishable ex ante (Winfree and McCluskey, 2005;McQuade et al, 2010), but always in a deterministic framework. Recent work on stochastic quality, on the other hand, normally assumes that a firm can signal the quality of its product (high or low) such that its own reputation matters, not the collective reputation.…”

“…That is, the level of R determines the location of the inverse demand curve, as in Winfree and McCluskey (2005) and Claude and Zaccour (2009). We further assume that, although the firms may invest in product quality to increase their collective level of reputation, they are unable to trace exactly how consumers convert product quality into reputation but can only form expectations on that.…”

“…The assumption on average quality is used also in a deterministic framework in Winfree and McCluskey (2005) and in McQuade et al (2010) who use a quantity-weighted average of the qualities sold by the firms. Indeed, consumers only have an idea of average quality since they cannot distinguish individual contributions to quality.…”

2. Linking smallholder farmers to high quality food chains: appraising institutional arrangements

“…The decentralised decision-making process within POs can lead to free-riding in quality upgrading as recognised by numerous scholars (e.g. Cook, 1995;Winfree and McCluskey, 2005). POs are also subject to internal organisational transaction costs, notably the costs of communicating the benefits of collective action and coordinating smallholders along these precepts.…”