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Umbrella branding and external certification

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  • Hakenes, Hendrik
  • Peitz, Martin

Abstract

In a market environment with random detection of product quality, a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products. Alternatively, a firm can rely on external certification of the quality of one or both of its products. We characterize equilibria in which umbrella branding fully or partially substitutes for external certification. We also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information, namely whether information comes from external certification or from random detection.

Suggested Citation

  • Hakenes, Hendrik & Peitz, Martin, 2009. "Umbrella branding and external certification," European Economic Review, Elsevier, vol. 53(2), pages 186-196, February.
  • Handle: RePEc:eee:eecrev:v:53:y:2009:i:2:p:186-196
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    References listed on IDEAS

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    1. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
    2. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
    3. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    4. Luis M. B. Cabral, 2001. "Optimal Brand Umbrella Size," Working Papers 01-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363.
    6. Hakenes, Hendrik & Peitz, Martin, 2008. "Umbrella branding and the provision of quality," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 546-556, March.
    7. Jay Pil Choi, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 655-669.
    8. Thomas L. Sporleder & Peter D. Goldsmith, 2001. "Alternative Firm Strategies for Signaling Quality in the Food System," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 591-604, December.
    9. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    10. 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.
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    Cited by:

    1. Jeanine Mikl├│s-Thal, 2012. "Linking reputations through umbrella branding," Quantitative Marketing and Economics (QME), Springer, vol. 10(3), pages 335-374, September.
    2. repec:bla:jindec:v:65:y:2017:i:2:p:309-335 is not listed on IDEAS
    3. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, October.
    4. Spielmann, Nathalie & Williams, Christopher, 2016. "It goes with the territory: Communal leverage as a marketing resource," Journal of Business Research, Elsevier, vol. 69(12), pages 5636-5643.
    5. Nadja Silberhorn & Lutz Hildebrandt, 2012. "Does umbrella branding really work? Investigating cross-category brand loyalty," SFB 649 Discussion Papers SFB649DP2012-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Keywords

    Umbrella branding Certification Signalling;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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