Advantages of Groups in Market Transactions

Abstract

This paper takes individuals as rational economic decision makers but ones operating within well-defined groups not just today but into the future when a reputation for fair dealing will be of significance. The paper explores the functional advantages which might accrue from group membership in such circumstances. As social science makes clear, most groups come into being for social and cultural reasons independent of any obvious immediate economic advantage. For this reason, this paper is exploratory of the boundary between economic reasoning and that of other social sciences. It explores the "bridge too far," cited by Loveridge in the 1993 special edition of this journal. This is a metaphor for the possibility of a meaningful connector between social psychological and economic reasoning. This paper tentatively looks into the relationships that might be established between the specific economic analysis covered by this paper and that deployed in other social sciences. In essence, the paper suggests that both reputational and informational benefits arise from group behavior. These benefits accrue to both its members and others. By extension it is argued that similar advantages can accrue to "families" of products in marketing. In both cases, reputational "linkage" serves as a commitment device (Schelling, 1960) with ensuing benefits to all members of the group or product family. These relationships are seen to mediate the reputational guarantees given to consumers.