Selling When Brand Image Matters
This paper studies profit-maximizing seller behavior when brand image affects consumer demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze “active branding” by the seller through costly advertising. Our analysis shows that advertising, price and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of “passive branding” emanating from the population’s consumption of the product. We demonstrate that seller profits increase in the average degree of conformity in the opulation whereas the price remains unaffected.
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number
2010-14.
| Length: | 19 pages |
| Date of creation: | May 2010 |
| Handle: | RePEc:usg:dp2010:2010-14 |
| Contact details of provider: | Postal: Dufourstrasse 50, CH - 9000 St.Gallen Phone: +41 71 224 23 25 Fax: +41 71 224 31 35 Web page: http://www.seps.unisg.ch/ Email: More information through EDIRC
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References listed on IDEAS
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