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Optimal Brand Umbrella Size

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  • Cabral, L.M.B.

Abstract

In a framework or repeate -purchase experience goo s with seller's moral hazar , umbrella branding may improve the terms of the "implicit contract" between firm an consumers, whereby the ¯firm invests in quality an consumers p ay a high price. The reason is that the costs from cheating consumers are greater under umbrella branding (loss of reputation in all products), which implies that the high- uality equilibrium is more stable. The reverse side of this coin is that, if reputation breaks own in one pro uct (which is a istinct possibility in a worl with imperfect observability), then the ba news travel faster un er umbrella branding.

Suggested Citation

  • 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-.
  • Handle: RePEc:fth:nystfi:01-06
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    References listed on IDEAS

    as
    1. 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.
    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. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363, June.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    5. Sappington, David E M & Wernerfelt, Birger, 1985. "To Brand or Not to Brand? A Theoretical and Empirical Question," The Journal of Business, University of Chicago Press, vol. 58(3), pages 279-293, July.
    6. Sullivan, Mary, 1990. "Measuring Image Spillovers in Umbrella-Branded Products," The Journal of Business, University of Chicago Press, vol. 63(3), pages 309-329, July.
    7. 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.
    8. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
    9. Choi, Chong Ju & Scarpa, Carlo, 1992. "Credible spatial preemption through reputation extension," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 439-447, September.
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    Cited by:

    1. Cabral, Luis M.B., 2005. "An equilibrium approach to international merger policy," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 739-751, December.
    2. Hongbin Cai & Ichiro Obara, 2009. "Firm reputation and horizontal integration," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 340-363, June.
    3. Fishman, Arthur & Finkelshtain, Israel & Simhon, Avi & Yacouel, Nira, 2008. "The Economics of Collective Brands," Discussion Papers 46056, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    4. 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.
    5. Hakenes, Hendrik & Peitz, Martin, 2009. "Umbrella branding and external certification," European Economic Review, Elsevier, vol. 53(2), pages 186-196, February.
    6. Cabral, Luis M. B., 2003. "International merger policy coordination," Japan and the World Economy, Elsevier, vol. 15(1), pages 21-30, January.

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    More about this item

    Keywords

    PRICES ; COSTS ; CONSUMERS ; CONTRACTS;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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