Strategic Responses to the Reputation Commons Problem

Abstract:     
Firms within an industry often find themselves tarred by the same brush. When accidents occur, stakeholders often punish both the offending firm and the entire industry. In this way, a firm's reputation may be tied to other firms, and so reputation may be a common resource shared by all members of an industry - what we term a reputation commons. As with many shared resources, an industry's reputation may be overexploited. A firm can benefit from the favorable reputation of an industry even as it takes individual actions that may harm this shared reputation. In this chapter, we explore when a reputation commons is likely to occur and discuss how firms individually and collectively respond to the problems associated with it. We propose that firms can solve the reputation commons problem by reducing the sanctioning ability of stakeholders and by privatizing reputation.

Keywords: Tragedy of the commons, reputation, collective action

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