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Brand Extension as Informational Leverage

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  • Jay Pil Choi

Abstract

The marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well-established brands have an advantage in introducing new products. This paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good's reputation in one market to alleviate the problem of informational asymmetry encountered in other markets. It is shown that brand extension helps a multi-product monopolist introduce a new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital.

Suggested Citation

  • Jay Pil Choi, 1998. "Brand Extension as Informational Leverage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(4), pages 655-669.
    • Handle: RePEc:oup:restud:v:65:y:1998:i:4:p:655-669.
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    File URL: http://hdl.handle.net/10.1111/1467-937X.00063
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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