Observability and Sorting in a Market for Names

Can firm names be tradeable assets when changes in name ownership are observable? Earlier literature suggests that non-observability is critical to sustaining name trading. Yet, casual empiricism suggests that shifts in name ownership may be publicly known. This paper shows how firm names can be traded even under full observability. In equilibrium, even when consumers see a reputed name being divested they continue trusting it and so, these names are tradeable. I also demonstrate an appealing “sorting” property of the equilibria. Competent firms separate themselves by buying valuable names, or incompetent firms give themselves away by using worthless names. I am indebted to Johannes Hörner for his dedicated mentoring and encouragement. I would like to thank Sourav Bhattacharya, Jeff Ely, Péter Eső, Ehud Kalai, Peter Klibanoff and Tapas Kundu for helpful comments. Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University; [email protected]