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The Economics of Collective Brands

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Author Info

  • 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. Robert Evans & Timothy W Guinnane, 2007. "Collective Reputation, Professional Regulation and Franchising," Levine's Bibliography 122247000000001563, UCLA Department of Economics.
  2. Abhijit Banerjee & Esther Duflo, 1999. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," Working papers 99-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Cai, Hongbin, 2004. "Firm Reputation and Horizontal Integration," Santa Cruz Department of Economics, Working Paper Series qt6rk9f1fm, Department of Economics, UC Santa Cruz.
  4. 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.
  5. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 415-41, April.
  6. 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.
  7. Fishman, A., 1995. "Search with Learning and Price Adjustment Dynamics," Papers 18-95, Tel Aviv - the Sackler Institute of Economic Studies.
  8. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Pil Choi, J., 1997. "Brand Extension as Informational Leverage," ISER Discussion Paper 0451, Institute of Social and Economic Research, Osaka University.
  10. Castriota, Stefano & Delmastro, Marco, 2008. "Individual and Collective Reputation: Lessons from the Wine Market," Working Papers 45504, American Association of Wine Economists.
  11. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.
  12. Luis M. B. Cabral, 2001. "Optimal Brand Umbrella Size," Working Papers 01-06, New York University, Leonard N. Stern School of Business, Department of Economics.
  13. 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.
  14. 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.
  15. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  16. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
  17. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-67, February.
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