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The Economics of Collective Brands

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  • Fishman, Arthur
  • Finkelshtain, Israel
  • Simhon, Avi
  • Yacouel, Nira

Abstract

We consider the consequences of a shared brand name such as geographical names used to identify high quality products, for the incentives of otherwise autonomous firms to invest in quality. We contend that such collective brand labels improve communication between sellers and consumers, when the scale of production is too small for individual firms to establish reputations on a stand alone basis. This has two opposing effects on member firms’ incentives to invest in quality. On the one hand, it increases investment incentives by increasing the visibility and transparency of individual member firms, which increases the return from investment in quality. On the other hand, it creates an incentive to free ride on the group’s reputation, which can lead to less investment in quality. We identify parmater values under which collective branding delivers higher quality than is achievable by stand alone firms.

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Bibliographic Info

Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 46056.

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Date of creation: 15 Dec 2008
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Handle: RePEc:ags:huaedp:46056

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Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
Phone: 08-9481230
Fax: 08-9466267
Web page: http://departments.agri.huji.ac.il/economics/indexe.html
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Keywords: Consumer/Household Economics;

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  1. Castriota Stefano & Delmastro Marco, 2010. "Individual and Collective Reputation: Lessons from the Wine Market," L'industria, Società editrice il Mulino, issue 1, pages 149-172.
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  8. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363.
  9. Robert Evans & Timothy W Guinnane, 2007. "Collective Reputation, Professional Regulation and Franchising," Levine's Bibliography 122247000000001563, UCLA Department of Economics.
  10. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  11. Maria Luz Loureiro & Jill J. McCluskey, 2000. "Assessing consumer response to protected geographical identification labeling," Agribusiness, John Wiley & Sons, Ltd., vol. 16(3), pages 309-320.
  12. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
  13. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects And The Limits Of Contracting: A Study Of The Indian Software Industry," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 989-1017, August.
  14. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.
  15. Rafael Rob & Arthur Fishman, 2005. "Is Bigger Better? Customer Base Expansion through Word-of-Mouth Reputation," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1146-1175, October.
  16. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-97, April.
  17. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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