Selling When Brand Image Matters
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper 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.
Length: 19 pages
Date of creation: May 2010
Date of revision:
Quality; brand image; advertising; conformity; exclusivity;
Other versions of this item:
- Stefan Buehler & Daniel Halbheer, 2011. "Selling when Brand Image Matters," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(1), pages 102-118, March.
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-COM-2010-05-15 (Industrial Competition)
- NEP-MKT-2010-05-15 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pesendorfer, Wolfgang, 1995.
"Design Innovation and Fashion Cycles,"
American Economic Review,
American Economic Association, vol. 85(4), pages 771-92, September.
- Kyle Bagwell, 2005.
"The Economic Analysis of Advertising,"
0506-01, Columbia University, Department of Economics.
- Grilo, Isabel & Shy, Oz & Thisse, Jacques-Francois, 2001.
"Price competition when consumer behavior is characterized by conformity or vanity,"
Journal of Public Economics,
Elsevier, vol. 80(3), pages 385-408, June.
- GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, 1997. "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers 1997032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Wilfred Amaldoss & Sanjay Jain, 2005. "Conspicuous Consumption and Sophisticated Thinking," Management Science, INFORMS, vol. 51(10), pages 1449-1466, October.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Anette Boom & Pio Baake, .
"Vertical Product Differentiation, Network Externalities, and Compatibility Decisions,"
010, Departmental Working Papers.
- Baake, Pio & Boom, Anette, 2001. "Vertical product differentiation, network externalities, and compatibility decisions," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 267-284, January.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
- Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
- Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004.
"Does Advertising Lower the Price of Newspapers to Consumers ? A Theoretical Appraisal,"
2004-40, Centre de Recherche en Economie et Statistique.
- Gabszewicz, Jean J. & Laussel, Didier & Sonnac, Nathalie, 2005. "Does advertising lower the price of newspapers to consumers? A theoretical appraisal," Economics Letters, Elsevier, vol. 87(1), pages 127-134, April.
- Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
- Corneo, Giacomo & Jeanne, Olivier, 1997. "Conspicuous consumption, snobbism and conformism," Journal of Public Economics, Elsevier, vol. 66(1), pages 55-71, October.
- Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
- 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.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Kevin Lane Keller & Donald R. Lehmann, 2006. "Brands and Branding: Research Findings and Future Priorities," Marketing Science, INFORMS, vol. 25(6), pages 740-759, 11-12.
- Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martina Flockerzi).
If references are entirely missing, you can add them using this form.