Reputation in Marketing Channels: Repeated-Transactions Bargaining with Two-Sided Uncertainty

Banks, Darryl T.; Hutchinson, J. Wesley; Meyer, Robert J.
June 2002
Marketing Science;Summer2002, Vol. 21 Issue 3, p251
Academic Journal
Our analysis shows that, in general, the best reputation for the seller to take to the bargaining table is one that makes the buyer nearly certain in his belief that the seller's cost is high, a result that matches intuition. The best reputation for the buyer, however, is counterintuitive. We show that an increase in the buyer's reputed willingness to pay can actually cause the seller to offer a lower price. The best reputation for the buyer to take to the bargaining table is, therefore, one that makes the seller believe that there is a significant chance that he is willing to pay a high price. This result is new to the literature and brings with it immediate managerial implications that we discuss. Our analysis also shows that modeling the buyer as a forward-looking strategic player yields different results than does following the normal convention of modeling the buyer as a nonstrategic pie-taker. We discuss why future research on channels and on reference-dependent utility theory should consider these differences.


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