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. We present the case of Washington apples in light of the results of the analytical model.Agribusiness,