Quality Provision, Expected Firm Altruism and Brand Extensions

Julio Rotemberg

No 15635, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies quality choice in a model where consumers expect firms (or brands) to act altruistically. Under plausible assumptions regarding this altruism and the reaction of consumers to firms that demonstrate insufficient altruism, existing brands can face a larger demand for new products than new entrants. Moreover, the failure of new products can reduce the demand for a brand's existing products even if the quality of these existing products is well understood by consumers. The model provides an interpretation for the dependence of the success of brand extensions on the ``fit" between the original product and the extension. The model can also explain why a ``high-end" brand that is expected to care only for its most quality sensitive customers can have an advantage in introducing a product relative to a brand that is expected to be more widely altruistic.

JEL-codes: D64 L15 L21 (search for similar items in EconPapers)
Date: 2010-01
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Rotemberg, Julio J. "Expected Firm Altruism, Quality Provision, and Brand Extensions." Marketing Science 32, no. 2 (March–April 2013): 325–341.

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