Brand Extension as Informational Leverage

Jay Choi

The Review of Economic Studies, 1998, vol. 65, issue 4, 655-669

Abstract: The marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well-established brands have an advantage in introducing new products. This paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good's reputation in one market to alleviate the problem of informational asymmetry encountered in other markets. It is shown that brand extension helps a multi-product monopolist introduce a new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:65:y:1998:i:4:p:655-669.

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