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Selling When Brand Image Matters

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  • Stefan Bühler

    ()

  • Daniel Halbheer

    ()

Abstract

This paper studies profit-maximizing seller behavior when brand image affects consumer demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze “active branding” by the seller through costly advertising. Our analysis shows that advertising, price and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of “passive branding” emanating from the population’s consumption of the product. We demonstrate that seller profits increase in the average degree of conformity in the opulation whereas the price remains unaffected.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2010/DP-1014-Bu.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-14.

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Length: 19 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:usg:dp2010:2010-14

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Keywords: Quality; brand image; advertising; conformity; exclusivity;

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References

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  1. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Does advertising lower the price of newspapers to consumers? A theoretical appraisal," CORE Discussion Papers RP -1760, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  3. Nils-Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 113-126, July.
  4. Anette Boom & Pio Baake, . "Vertical Product Differentiation, Network Externalities, and Compatibility Decisions," Papers 010, Departmental Working Papers.
  5. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
  6. Pesendorfer, Wolfgang, 1995. "Design Innovation and Fashion Cycles," American Economic Review, American Economic Association, vol. 85(4), pages 771-92, September.
  7. Erdem, Tulin & Broniarczyk, Susan & Charavarti, Dipankar & Kapferer, Jean-Noel & Keane, Michael & Roberts, John & Steenkamp, Jan-Benedict & Swait, Joffre & Zettelmeyer, Florian, 1999. "Brand Equity, Consumer Learning and Choice," MPRA Paper 53022, University Library of Munich, Germany.
  8. Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
  9. Corneo, Giacomo & Jeanne, Olivier, 1997. "Conspicuous consumption, snobbism and conformism," Journal of Public Economics, Elsevier, vol. 66(1), pages 55-71, October.
  10. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
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Cited by:
  1. Buehler, Stefan & Halbheer, Daniel, 2012. "Persuading consumers with social attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 439-450.
  2. Denter, Philipp, 2013. "A theory of communication in political campaigns," Economics Working Paper Series 1302, University of St. Gallen, School of Economics and Political Science.
  3. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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