Stretching Firm and Brand Reputation
AbstractI consider an adverse selection model of product quality. Consumers observe the performance of the firm's products, and product performance is positively related to the firm's (privately observed) quality level. If a firm is to launch a new product, should it use the same name as its base product (reputation stretching), or should it create a new name (and start a new reputation history)? I show that for a given level of past performance (reputation), firms stretch if and only if quality is sufficiently high. Stretching thus signals high quality.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 00-07.
Date of creation: 2000
Date of revision:
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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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Other versions of this item:
- 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-.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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