THE DYNAMICS OF NAMES: A MODEL OF REPUTATION

The article studies reputation of names and its dynamics. First, the article shows that names backed by nothing intrinsic can bear reputation. Although the context is purely of adverse selection, a mechanism in the spirit of Kreps (1990) helps to sustain reputation. Second, it examines how the dynamics of the reputation affects the extent of sorting and the level of social efficiency and derives the dynamics in the equilibria with the highest efficiency. Finally, it empirically predicts that brand names can be fully established sooner in an industry where high-end products have larger profit margins.