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Diminishing returns from reputation: do followers have a competitive advantage?

Author: Obloj, Tomasz ; Obloj, KrzysztofINSEAD Area: StrategyIn: Corporate Reputation Review, vol. 9, no. 4, January 2007 Language: EnglishDescription: p. 213-224.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: This paper addresses the value of reputation as a strategic, intangible resource. We hypothesize that a high reputation of an exchange partner will result in the ability to command a premium price during a transaction. We also hypothesize that the smaller the differences in the levels of reputation of competing parties, the more valuable a unit of reputation becomes. We test these hypotheses by empirical analysis of pairs of transactions on the Polish electronic exchange Allegro. Our analysis shows that as the differences in the levels of reputation decrease, the value of a unit of difference increases. We also extrapolate the results of our research into a more general model that shows the conditions in which a strategy based on high reputation is the most effective one and indicates the process of reputation development by stimulating the dynamics of leader and follower behavior.
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This paper addresses the value of reputation as a strategic, intangible resource. We hypothesize that a high reputation of an exchange partner will result in the ability to command a premium price during a transaction. We also hypothesize that the smaller the differences in the levels of reputation of competing parties, the more valuable a unit of reputation becomes. We test these hypotheses by empirical analysis of pairs of transactions on the Polish electronic exchange Allegro. Our analysis shows that as the differences in the levels of reputation decrease, the value of a unit of difference increases. We also extrapolate the results of our research into a more general model that shows the conditions in which a strategy based on high reputation is the most effective one and indicates the process of reputation development by stimulating the dynamics of leader and follower behavior.

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