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Reputational Spillovers

Reputational spillovers occur when the actions of one firm affect the reputations of other firms. Reputational spillovers result from observers’ inability or unwillingness to distinguish the actions of one firm from those of similar other firms, particularly those in the same industry; instead, they assume that all such firms have similar characteristics. Reputational spillovers can be positive, whereby other firms benefit from improvements to their reputations unrelated to any actions they have taken, but most attention has been given to negative spillovers, whereby other firms’ reputations are harmed. Those firms subject to reputational spillovers may mitigate their risk of being punished for the actions of similar other firms by making their unique characteristics more salient to observers and by cooperating with similar others to improve ...

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