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Umbrella branding with imperfect observability and moral hazard

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  • Cabral, Luís M.B.

Abstract

In a framework of repeated-purchase experience goods with seller's moral hazard and imperfect monitoring, umbrella branding may improve the terms of the implicit contract between seller and buyers, whereby the seller invests in quality and buyers pay a high price. In some cases, umbrella branding leads to a softer punishment of product failure, which increases the seller's value. In other cases, umbrella branding leads to a harsher punishment of product failure, which allows for a reputational equilibrium that would otherwise be impossible. On the negative side, under umbrella branding one bad signal may kill two revenue streams, not one. Combining costs and benefits, I determine the set of parameter values such that umbrella branding is an optimal strategy.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:2:p:206-213
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    References listed on IDEAS

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    Cited by:

    1. Pio Baake & Vanessa Schlippenbach, 2011. "Quality distortions in vertical relations," Journal of Economics, Springer, vol. 103(2), pages 149-169, June.
    2. repec:bla:jindec:v:65:y:2017:i:2:p:309-335 is not listed on IDEAS
    3. Sridhar Moorthy, 2012. "Can Brand Extension Signal Product Quality?," Marketing Science, INFORMS, vol. 31(5), pages 756-770, September.
    4. Saak, Alexander E., 2016. "Delegation of quality control in value chains:," IFPRI discussion papers 1526, International Food Policy Research Institute (IFPRI).
    5. Saak, Alexander E., 2016. "Traceability and reputation in supply chains," International Journal of Production Economics, Elsevier, vol. 177(C), pages 149-162.
    6. repec:eee:ijrema:v:31:y:2014:i:3:p:253-265 is not listed on IDEAS
    7. Cesaltina Pacheco Pires & Margarida Catalão-Lopes, 2012. "Scope economies, entry deterrence and welfare," CEFAGE-UE Working Papers 2012_11, University of Evora, CEFAGE-UE (Portugal).
    8. Brishti Guha, 2017. "Moral hazard, Bertrand competition and natural monopoly," Journal of Economics, Springer, vol. 121(2), pages 153-171, June.
    9. Jeanine Miklós-Thal, 2012. "Linking reputations through umbrella branding," Quantitative Marketing and Economics (QME), Springer, vol. 10(3), pages 335-374, September.
    10. Miklos-Thal, Jeanine, 2008. "Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding," MPRA Paper 11045, University Library of Munich, Germany.
    11. Eric Rasmusen, 2011. "Leveraging of Reputation Through Umbrella Branding with and Without Market Power," Working Papers 2011-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    12. repec:eee:ijrema:v:27:y:2010:i:3:p:271-280 is not listed on IDEAS

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    Keywords

    Branding Repeated games Reputation;

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