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Quality Provision, Expected Firm Altruism and Brand Extensions

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  • Julio J. Rotemberg

Abstract

This paper studies quality choice in a model where consumers expect firms (or brands) to act altruistically. Under plausible assumptions regarding this altruism and the reaction of consumers to firms that demonstrate insufficient altruism, existing brands can face a larger demand for new products than new entrants. Moreover, the failure of new products can reduce the demand for a brand's existing products even if the quality of these existing products is well understood by consumers. The model provides an interpretation for the dependence of the success of brand extensions on the ``fit" between the original product and the extension. The model can also explain why a ``high-end" brand that is expected to care only for its most quality sensitive customers can have an advantage in introducing a product relative to a brand that is expected to be more widely altruistic.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15635.

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Date of creation: Jan 2010
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Publication status: published as Rotemberg, Julio J. "Expected Firm Altruism, Quality Provision, and Brand Extensions." Marketing Science 32, no. 2 (March–April 2013): 325–341.
Handle: RePEc:nbr:nberwo:15635

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  1. Pil Choi, J., 1997. "Brand Extension as Informational Leverage," ISER Discussion Paper 0451, Institute of Social and Economic Research, Osaka University.
  2. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March.
  3. Rotemberg, Julio J., 2008. "Minimally acceptable altruism and the ultimatum game," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 457-476, June.
  4. 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.
  5. Eric T. Anderson & Duncan I. Simester, 2010. "Price Stickiness and Customer Antagonism," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 729-765, May.
  6. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
  7. Sullivan, Mary, 1990. "Measuring Image Spillovers in Umbrella-Branded Products," The Journal of Business, University of Chicago Press, vol. 63(3), pages 309-29, July.
  8. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
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Cited by:
  1. Jeanine Miklós-Thal, 2012. "Linking reputations through umbrella branding," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 335-374, September.

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