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Selling when Brand Image Matters

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  • Stefan Buehler
  • Daniel Halbheer

Abstract

This paper studies profit-maximizing seller behavior when brand image affects demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze active branding by the seller through costly advertising. Our analysis shows that advertising, price, and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of passive branding emanating from the population's consumption of the product. We find that seller profits increase in the average degree of conformity in the population, whereas the price remains unaffected.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 167 (2011)
Issue (Month): 1 (March)
Pages: 102-118

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201103)167:1_102:swbim_2.0.tx_2-0

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  1. Corneo, Giacomo & Jeanne, Olivier, 1997. "Conspicuous consumption, snobbism and conformism," Journal of Public Economics, Elsevier, vol. 66(1), pages 55-71, October.
  2. Erdem, Tulin & Broniarczyk, Susan & Charavarti, Dipankar & Kapferer, Jean-Noel & Keane, Michael & Roberts, John & Steenkamp, Jan-Benedict & Swait, Joffre & Zettelmeyer, Florian, 1999. "Brand Equity, Consumer Learning and Choice," MPRA Paper 53022, University Library of Munich, Germany.
  3. Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Does Advertising Lower the Price of Newspapers to Consumers ? A Theoretical Appraisal," Working Papers 2004-40, Centre de Recherche en Economie et Statistique.
  4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  5. Wolfgang Pesendorfer, 1993. "Design Innovation and Fashion Cycles," Discussion Papers 1049, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
  7. Baake, Pio & Boom, Anette, 2001. "Vertical product differentiation, network externalities, and compatibility decisions," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 267-284, January.
  8. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  9. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
  10. Nils-Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 113-126, July.
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Cited by:
  1. Stefan Buehler & Daniel Halbheer, 2011. "Persuading Consumers with Social Attitudes," CESifo Working Paper Series 3470, CESifo Group Munich.
  2. Denter, Philipp, 2013. "A theory of communication in political campaigns," Economics Working Paper Series 1302, University of St. Gallen, School of Economics and Political Science.
  3. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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