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A leverage theory of reputation building with co-branding: Complementarity in reputation building

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  • Jay Pil Choi
  • Doh-Shin Jeon

Abstract

We present a leverage theory of reputation building with co-branding. We show that under certain conditions, co-branding that links unknown firms in a new sector with established firms in a mature sector allows the unknown firms to signal a high product quality and establish their own reputation. We compare this situation with a benchmark in which both sectors are new and firms signal their quality only with prices. We investigate how this comparison is affected by the nature of the technology linking the two sectors and a cross-sector inference problem that consumers might face in identifying the true cause of product failure. We find that co-branding facilitates the process in which a Þrm in the new sector to signal its product quality only if the co-branding sectors produce complementary inputs and consumers face a cross-sector inference problem. We apply our insight to economics of superstars, multinational firms and co-authorship.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1019.

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Date of creation: Mar 2007
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Handle: RePEc:upf:upfgen:1019

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Leverage; Co-branding; Complementarity in Reputation Building; Inference Problem;

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References

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  1. Bagwell, Kyle & Staiger, Robert W., 1989. "The role of export subsidies when product quality is unknown," Journal of International Economics, Elsevier, vol. 27(1-2), pages 69-89, August.
  2. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  3. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
  4. Abratt, Russell & Motlana, Patience, 2002. "Managing co-branding strategies: Global brands into local markets," Business Horizons, Elsevier, vol. 45(5), pages 43-50.
  5. Steven Albert, 1998. "Movie Stars and the Distribution of Financially Successful Films in the Motion Picture Industry," Journal of Cultural Economics, Springer, vol. 22(4), pages 249-270, December.
  6. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  7. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  8. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 131-171, January.
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Cited by:
  1. Thierry Warin & Nathalie de Marcellis-Warin & William Sanger & Bertrand Nembot & Venus Hosseinali Mirza, 2013. "Corporate Reputation and Social Media: A Game Theory Approach," CIRANO Working Papers 2013s-18, CIRANO.

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