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A leverage theory of reputation building with co-branding: Complementarity in reputation building

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  • Jay Pil Choi
  • Doh-Shin Jeon

Abstract

We present a leverage theory of reputation building with co-branding. We show that under certain conditions, co-branding that links unknown firms in a new sector with established firms in a mature sector allows the unknown firms to signal a high product quality and establish their own reputation. We compare this situation with a benchmark in which both sectors are new and firms signal their quality only with prices. We investigate how this comparison is affected by the nature of the technology linking the two sectors and a cross-sector inference problem that consumers might face in identifying the true cause of product failure. We find that co-branding facilitates the process in which a Þrm in the new sector to signal its product quality only if the co-branding sectors produce complementary inputs and consumers face a cross-sector inference problem. We apply our insight to economics of superstars, multinational firms and co-authorship.

Suggested Citation

  • Jay Pil Choi & Doh-Shin Jeon, 2007. "A leverage theory of reputation building with co-branding: Complementarity in reputation building," Economics Working Papers 1019, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1019
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    References listed on IDEAS

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    1. 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.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 131-171.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Jay Pil Choi, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 655-669.
    6. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    7. Steven Albert, 1998. "Movie Stars and the Distribution of Financially Successful Films in the Motion Picture Industry," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 22(4), pages 249-270, December.
    8. Bagwell, Kyle & Staiger, Robert W., 1989. "The role of export subsidies when product quality is unknown," Journal of International Economics, Elsevier, vol. 27(1-2), pages 69-89, August.
    9. Abratt, Russell & Motlana, Patience, 2002. "Managing co-branding strategies: Global brands into local markets," Business Horizons, Elsevier, vol. 45(5), pages 43-50.
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    Cited by:

    1. Thierry Warin & Nathalie De Marcellis-Warin & William Sanger & Bertrand Nembot & Venus Hosseinali Mirza, 2015. "Corporate reputation and social media: a game theory approach," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 9(1), pages 1-22.
    2. Choi, Jay Pil & Peitz, Martin, 2016. "You are judged by the company you keep : reputation leverage in vertically related markets," Working Papers 16-07, University of Mannheim, Department of Economics.

    More about this item

    Keywords

    Leverage; Co-branding; Complementarity in Reputation Building; Inference Problem;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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