Identifying the collective reputation premium: a spatial discontinuity approach

In competitive markets, reputation building is considered an important tool to reduce price competition and increase profits. However, from an empirical point of view, identifying the contribution of collective reputation on price net of other confounding variables such as quality, firm reputation and horizontal differentiation, is not trivial. In this work, using an extensive database on Italian geolocalized wineries, we exploit spatial discontinuity at the borders of the wine appellation areas in Piedmont and Tuscany to investigate the impact of collective reputation on price. Results show that collective reputation carries an important price premium for well-known appellations, while the effect is not significant or even negative for weaker ones. This suggests that an excessive proliferation of collective brands might not be useful and could even turn out being harmful as it can confuse buyers.