search query: @author Garella, P.G. / total: 1
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| Author: | Garella, P.G. Peitz, M. |
| Title: | Alliances between competitors and consumer information |
| Journal: | Journal of the European Economic Association
2007 : JUN, VOL. 5:4, p. 823-845 |
| Index terms: | markets brands products quality consumers information alliances competition models |
| Language: | eng |
| Abstract: | Alliances between competitors are important business practices. This study analyzes a market where an established firm A produces a product of well-known quality, and a firm B with an unknown brand has to choose to produce high or low quality. Firm A observes firm B's quality choice but consumers do not. Hence, firm B is subject to a moral hazard problem which can potentially be solved by firm A. Firm A can accept or reject to form an alliance with firm B, which is observed by consumers. If an alliance is formed, firm A implicitly certifies the rival's product. Consumers infer that firm B is a competitor with high quality, because otherwise why would the established firm accept to form an alliance? This discovered mechanism allows for an economic interpretation of several types of business practices. |
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