Optimal Brand Umbrella Size

Luis M B Cabral ()

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

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.

Keywords: PRICES; COSTS; CONSUMERS; CONTRACTS (search for similar items in EconPapers)
JEL-codes: L14 L11 L15 (search for similar items in EconPapers)
Date: 2001
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