Umbrella branding and the provision of quality

Hendrik Hakenes and Martin Peitz

International Journal of Industrial Organization, 2008, vol. 26, issue 2, 546-556

Abstract: Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that one product may even be sold at a loss to stabilize the umbrella brand. In general, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-7187(07)00047-1
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Umbrella Branding and the Provision of Quality (2006)
Working Paper: Umbrella Branding and the Provision of Quality (2004)
Working Paper: Umbrella branding and the provision of quality (2004)
Working Paper: Umbrella Branding and the Provision of Quality (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:26:y:2008:i:2:p:546-556

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().