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Leveraging of Reputation through Umbrella Branding: The Implications for Market Structure

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  • Eric B. Rasmusen

Abstract

The Klein–Leffler model explains how fear of reputation loss can induce firms to produce high‐quality experience goods. This paper shows that reputation can be leveraged across products via umbrella branding, but only by a firm with a monopoly on at least one product. Such a firm may be able to capture a market by using umbrella branding to make high quality credible at a lower price than the incumbent competitive firms. If monopolists compete for this capture, consumers are left better off than if the market remained competitive, in some cases even though the price increases.

Suggested Citation

  • Eric B. Rasmusen, 2016. "Leveraging of Reputation through Umbrella Branding: The Implications for Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 261-273, April.
    • Handle: RePEc:bla:jemstr:v:25:y:2016:i:2:p:261-273
    DOI: 10.1111/jems.12145
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    References listed on IDEAS

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    1. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
    2. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
    3. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363, June.
    4. Choi, Chong Ju & Scarpa, Carlo, 1992. "Credible spatial preemption through reputation extension," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 439-447, September.
    5. Cabral, Luís M.B., 2009. "Umbrella branding with imperfect observability and moral hazard," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 206-213, March.
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    Cited by:

    1. Emanuele Bacchiega & Mariachiara Colucci & Vincenzo Denicolò & Marco Magnani, 2024. "Only the Ugly Face? A Theoretical Model of Brand Dilution," Management Science, INFORMS, vol. 70(5), pages 3182-3199, May.
    2. Klerman, Daniel & de Figueiredo, Miguel F.P., 2021. "Reputational economies of scale," International Review of Law and Economics, Elsevier, vol. 65(C).
    3. Nadja Silberhorn & Yasemin Boztuğ & Lutz Hildebrandt, 2017. "Does umbrella branding really work? Investigating cross-category brand loyalty," Journal of Business Economics, Springer, vol. 87(3), pages 397-420, April.
    4. E. Bacchiega & M. Colucci & M. Magnani, 2019. "What goes around, comes around: Reciprocal effects and double-sided moral hazard in the choice of brand licensing," Working Papers wp1136, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. J.-P. Niinimäki, 2023. "Experience Goods, Umbrella Branding, and Reputation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 33-44, February.
    6. Dieter Pennerstorfer & Christoph Weiss & Andreas Huber, 2019. "Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices," Economics working papers 2019-08, Department of Economics, Johannes Kepler University Linz, Austria.

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