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Umbrella branding and the provision of quality

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  • Hakenes, Hendrik
  • Peitz, Martin

Abstract

Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that one product may even be sold at a loss to stabilize the umbrella brand. In general, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 2 (March)
Pages: 546-556

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Handle: RePEc:eee:indorg:v:26:y:2008:i:2:p:546-556

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Web page: http://www.elsevier.com/locate/inca/505551

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Cited by:
  1. Eric Rasmusen, 2011. "Leveraging of Reputation Through Umbrella Branding with and Without Market Power," Working Papers 2011-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Drasko Nikolic & Dusko Bodroza, 2012. "Positioning and Re-positioning of National Brand of Serbia in order to Increase to Increase Exports, Foreign Direct Investments and Tourism Development," Book Chapters, Institute of Economic Sciences.
  3. Hendrik Hakenes & Martin Peitz, 2008. "Umbrella Branding and External Certification," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_10, Max Planck Institute for Research on Collective Goods.
  4. Miklos-Thal, Jeanine, 2008. "Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding," MPRA Paper 11045, University Library of Munich, Germany.
  5. Jeanine Miklós-Thal, 2012. "Linking reputations through umbrella branding," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 335-374, September.
  6. Garcia, Daniel, 2014. "Branding and Collusion in Vertically Differentiated Industries," MPRA Paper 54010, University Library of Munich, Germany.
  7. Nadja Silberhorn & Lutz Hildebrandt, 2012. "Does umbrella branding really work? Investigating cross-category brand loyalty," SFB 649 Discussion Papers SFB649DP2012-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Cabral, Luís M.B., 2009. "Umbrella branding with imperfect observability and moral hazard," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 206-213, March.

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