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Umbrella Branding and External Certification

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  • Hakenes, Hendrik
  • Peitz, Martin

Abstract

In a market environment with random detection of product quality, a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products. Alternatively, a firm can rely on external certification of the quality of one or both of its products. We characterize equilibria in which umbrella branding fully or partially substitutes for external certification. We also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information, namely whether information comes from external certification or from random detection.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6601.

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Date of creation: Dec 2007
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Handle: RePEc:cpr:ceprdp:6601

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Keywords: certification; signalling; umbrella branding;

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References

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  1. Cabral, L.M.B., 2001. "Optimal Brand Umbrella Size," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-06, New York University, Leonard N. Stern School of Business-.
  2. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
  3. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Hendrik Hakenes & Martin Peitz, 2004. "Umbrella Branding and the Provision of Quality," CESifo Working Paper Series 1373, CESifo Group Munich.
  5. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363.
  6. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
  7. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  8. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
  9. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  10. Thomas L. Sporleder & Peter D. Goldsmith, 2001. "Alternative Firm Strategies for Signaling Quality in the Food System," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 591-604, December.
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Cited by:
  1. Nadja Silberhorn & Lutz Hildebrandt, 2012. "Does umbrella branding really work? Investigating cross-category brand loyalty," SFB 649 Discussion Papers SFB649DP2012-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Jeanine Mikl├│s-Thal, 2012. "Linking reputations through umbrella branding," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 335-374, September.

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