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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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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
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  1. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May. [Downloadable!] (restricted)
  2. Fishman, Arthur, 1996. "Search with Learning and Price Adjustment Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 253-68, February.
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  3. Robert Evans & Timothy W. Guinnane, 2007. "Collective Reputation, Professional Regulation and Franchising," Cowles Foundation Discussion Papers 1627, Cowles Foundation, Yale University. [Downloadable!]
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  4. Cabral, L.M.B., 2000. "Stretching Firm and Brand Reputation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 00-07, New York University, Leonard N. Stern School of Business-.
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  5. Mailath, George J & Samuelson, Larry, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Blackwell Publishing, vol. 68(2), pages 415-41, April.
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  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. [Downloadable!] (restricted)
  7. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring. [Downloadable!] (restricted)
  8. 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.
  9. 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. [Downloadable!] (restricted)
  10. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June. [Downloadable!] (restricted)
  11. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany. [Downloadable!]
  12. Castriota, Stefano & Delmastro, Marco, 2008. "Individual and Collective Reputation: Lessons from the Wine Market," Working Papers 45504, American Association of Wine Economists. [Downloadable!]
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