Selling reputation when going out of business

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.

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Year of publication:	2004
Authors:	Hakenes, Hendrik ; Peitz, Martin
Publisher:	Munich : Center for Economic Studies and Ifo Institute (CESifo)
Subject:	Übernahme \| Unternehmensnachfolge \| Firmenimage \| Ärzte \| Intangibles Gut \| Theorie \| reputation \| ownership change \| intangible asset \| theory of the firm

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Series:	CESifo Working Paper ; 1213
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	856664812 [GVK] hdl:10419/18852 [Handle]
Classification:	D40 - Market Structure and Pricing. General ; L14 - Transactional Relationships; Contracts and Reputation; Networks ; L15 - Information and Product Quality; Standardization and Compatibility ; D82 - Asymmetric and Private Information
Source:	EconStor