Umbrella branding and the provision of quality
Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that one product may even be sold at a loss to stabilize the umbrella brand. In general, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- 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.
- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
- Kohlberg, Elon & Mertens, Jean-Francois, 1986.
"On the Strategic Stability of Equilibria,"
Econometric Society, vol. 54(5), pages 1003-37, September.
- E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
- KOHLBERG, Elon & MERTENS, Jean-François, . "On the strategic stability of equilibria," CORE Discussion Papers RP 716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Luis M.B. Cabral, 2000.
"Stretching Firm and Brand Reputation,"
RAND Journal of Economics,
The RAND Corporation, vol. 31(4), pages 658-673, Winter.
- Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
- Cabral, L.M.B., 2000. "Stretching Firm and Brand Reputation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 00-07, New York University, Leonard N. Stern School of Business-.
- Edward J Green & Robert H Porter, 1997.
"Noncooperative Collusion Under Imperfect Price Information,"
Levine's Working Paper Archive
1147, David K. Levine.
- Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
- Luis M. B. Cabral, 2001.
"Optimal Brand Umbrella Size,"
01-06, New York University, Leonard N. Stern School of Business, Department of Economics.
- Cabral, L.M.B., 2001. "Optimal Brand Umbrella Size," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-06, New York University, Leonard N. Stern School of Business-.
- Sullivan, Mary, 1990. "Measuring Image Spillovers in Umbrella-Branded Products," The Journal of Business, University of Chicago Press, vol. 63(3), pages 309-29, July.
- van Damme, Eric, 1989.
"Stable equilibria and forward induction,"
Journal of Economic Theory,
Elsevier, vol. 48(2), pages 476-496, August.
- Jay Pil Choi, 1998.
"Brand Extension as Informational Leverage,"
Review of Economic Studies,
Oxford University Press, vol. 65(4), pages 655-669.
- 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.
- Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
- Lynne M. Pepall, 2002.
"The Simple Economics of Brand Stretching,"
The Journal of Business,
University of Chicago Press, vol. 75(3), pages 535-552, July.
- Lynne Pepall & Dan Richards, 1999. "The Simple Economics of "Brand-Stretching"," Discussion Papers Series, Department of Economics, Tufts University 9905, Department of Economics, Tufts University.
- Gschwend, Thomas, 2004. "Ticket-Splitting and Strategic Voting," Sonderforschungsbereich 504 Publications 05-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
- Montgomery, Cynthia A & Wernerfelt, Birger, 1992. "Risk Reduction and Umbrella Branding," The Journal of Business, University of Chicago Press, vol. 65(1), pages 31-50, January.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:26:y:2008:i:2:p:546-556. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
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.