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Umbrella Branding and External Certification

  • Hakenes, Hendrik
  • Peitz, Martin

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6601.

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Date of creation: Dec 2007
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Handle: RePEc:cpr:ceprdp:6601
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  1. 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-.
  2. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  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. Hendrik Hakenes & Martin Peitz, 2004. "Umbrella Branding and the Provision of Quality," CESifo Working Paper Series 1373, CESifo Group Munich.
  5. Pil Choi, J., 1997. "Brand Extension as Informational Leverage," ISER Discussion Paper 0451, Institute of Social and Economic Research, Osaka University.
  6. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363.
  7. 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.
  8. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  9. 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.
  10. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
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