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Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding

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  • Miklos-Thal, Jeanine

Abstract

This paper develops a theory of umbrella branding as a way to link the reputations of otherwise unrelated products. I show that while umbrella branding can credibly signal positive quality correlation, there are no equilibria in which umbrella branding either fully reveals high quality, or signals negative quality correlation. Finally, whenever umbrella branding signals perfect positive quality correlation, firms that already produce high quality products have stronger incentives to invest in developing further high quality products than firms that are currently inactive or produce low quality products.

Suggested Citation

  • Miklos-Thal, Jeanine, 2008. "Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding," MPRA Paper 11045, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11045
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    File URL: https://mpra.ub.uni-muenchen.de/26853/1/MPRA_paper_26853.pdf
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    References listed on IDEAS

    as
    1. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
    2. 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.
    3. 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.
    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. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
    6. Grossman, Gene M & Shapiro, Carl, 1988. "Counterfeit-Product Trade," American Economic Review, American Economic Association, vol. 78(1), pages 59-75, March.
    7. Jay Pil Choi, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 655-669.
    8. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    9. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    10. 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 615-641, August.
    11. 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.
    12. 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.
    13. 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.
    14. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    15. 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.
    16. 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.
    17. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    Cited by:

    1. Luís Almeida Costa & Luís Vasconcelos, 2010. "Share the Fame or Share the Blame? The Reputational Implications of Partnerships," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 259-301, June.
    2. Drasko Nikolic & Dusko Bodroza, 2012. "Positioning and Re-positioning of National Brand of Serbia in order to Increase to Increase Exports, Foreign Direct Investments and Tourism Development," Book Chapters, Institute of Economic Sciences.

    More about this item

    Keywords

    reputation; umbrella branding; brand extensions; quality signaling;

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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