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.
- 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.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- 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.
- 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.
- Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
- 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.
- 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.
- Von der Fehr, N.H.M. & Stevik, K., 1996. "Persuasive Advertising and Product Differentiation," Memorandum 01/1996, Oslo University, Department of Economics.
- Stefan Buehler & Daniel Halbheer, 2011.
"Persuading Consumers with Social Attitudes,"
CESifo Working Paper Series
3470, CESifo Group Munich.
- 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.