Reputation and Entry
Abstract: This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We propose a repeated procurement model with reputation and entry assigning to the entrant a reputational score of varying size across treatments. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, appropriately designed reputation mechanisms actually stimulate it. Since quality increases but not prices, our data also suggest that the introduction of this kind of reputation mechanism may generate large welfare gains for the buyer.
