Observability and Sorting in a Market for Names


  • I am indebted to Johannes Hörner for his mentoring and encouragement. I would like to thank John Asker, Heski Bar-Isaac, Sourav Bhattacharya, Jeff Ely, Péter Eső, Peter Klibanoff, Tapas Kundu, Steven Tadelis, and seminar participants at Northwestern University, New York University and Rochester University, Simon School of Business for many insightful comments. I also thank Daniel Spulber, a co-editor and two anonymous referees for their constructive suggestions. This is a revised version of a chapter of my Ph.D. dissertation submitted to Northwestern University in 2008.


Can firm names be tradeable assets when changes in name ownership are observable? Earlier literature focuses on trading of firm names when trading is not observable to the consumer. Yet, casual empiricism suggests that shifts in name ownership are often publicly known. This paper studies how firm names can be traded even under full observability. In equilibrium, even when consumers see a reputed name being divested they continue to trust it and so, these names are tradeable. I further demonstrate an appealing “sorting” property of these equilibria. Competent firms can separate themselves by buying valuable names, and incompetent firms can give themselves away by using worthless names.