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Risk Reduction and Umbrella Branding

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Author Info
Montgomery, Cynthia A
Wernerfelt, Birger

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Abstract

In the context of competitive markets with asymmetric information, the authors develop a model of firms' branding decisions. In equilibrium, both branded and unbranded products exist, and the authors characterize price-quality relationships between them. In contrast to other advertising models, they predict that branded products will have lower average (price-adjusted) quality than unbranded products. This lower average is counterbalanced by lower variance in product quality, giving branding a risk-reducing rather than a quality-guaranteeing functions. The authors describe industries in which these relationships are likely to be stronger and test the predictions using Consumer Reports data on quality and price. Copyright 1992 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 65 (1992)
Issue (Month): 1 (January)
Pages: 31-50
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Handle: RePEc:ucp:jnlbus:v:65:y:1992:i:1:p:31-50

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Postal: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
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  1. Kristin Kiesel & Sofia Villas-Boas, 2008. "Another Nutritional Label--Experimenting with Grocery Store Shelf Labels and Consumer Choice--," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1060, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  2. Hendrik Hakenes & Martin Peitz, 2006. "Umbrella Branding and the Provision of Quality," Discussion Papers 132, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  3. Gergaud, Olivier & Livat, Florine, 2007. "How do consumers use signals to assess quality?," Working Papers 37296, American Association of Wine Economists. [Downloadable!]
  4. James Hilger & Greg Rafert & Sofia Villas-Boas, 2007. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1049, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
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