Reputation or: How I learned to stop worrying and love the market

Abstract

Contrary to popular belief, reputation does not always remedy market imperfections, but may exacerbate them. This is obvious once it is made clear that as a form of belief corporate reputation is akin to testimony. As such, reputation may subsist on unreliable beliefs. Reputation neither holds market actors to account nor is it a panacea for problems associated with tacit, or incomplete, contracts. Once it is clear that reputation may distort the market, it follows that the way in which firms may profit from reputation is by employing it to maximise the advantages of there being scarce, and imperfect, information in the market. A series of propositions for the strategic deployment of reputation follows from this observation. The critical question facing any corporation that would profit by its reputation is the extent to which it can foster an unjustified reputation before the market catches up with it. © 2009 Springer-Verlag Berlin Heidelberg.