Only the Ugly Face? A Theoretical Model of Brand Dilution

Emanuele Bacchiega (), Mariachiara Colucci (), Vincenzo Denicolò () and Marco Magnani ()
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Emanuele Bacchiega: Dipartimento di Informatica–Scienza e Ingegneria, Alma Mater Studiorum–Università di Bologna, 40126 Bologna, Italy
Mariachiara Colucci: Dipartimento di Scienze Aziendali, Alma Mater Studiorum–Università di Bologna, 40126 Bologna, Italy
Vincenzo Denicolò: Dipartimento di Scienze Economiche, Alma Mater Studiorum–Università di Bologna, 40126 Bologna, Italy; Centre for Economic Policy Research, London EC1V 0DX, United Kingdom
Marco Magnani: Italian Regulatory Authority for Energy, Networks and the Environment, 20121 Milan, Italy

Management Science, 2024, vol. 70, issue 5, 3182-3199

Abstract: This paper challenges two common views of brand dilution: first, that it is exclusively the unintended consequence of a poorly executed strategy of brand extension and, second, that its likelihood is heightened by brand licensing. Using a new theoretical model, we show that brand dilution can be seen not just as an unfortunate development to be avoided, but as an opportunity to monetize the brand. We further show that, at the relevant margin, switching from in-house development to licensing reduces the risk of brand dilution. The model offers a novel perspective on some important managerial choices and generates a series of empirically testable hypotheses.

Keywords: brand extension; brand licensing; moral hazard; reciprocal effect (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:5:p:3182-3199

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