What is umbrella branding

Umbrella branding and the provision of quality

Hakenes, Hendrik; Peitz, Martin

Url: http://ub-madoc.bib.uni-mannheim.de/2692
URN: urn: nbn: de: bsz: 180-madoc-26923
Document type: Working paper
Publishing year: 2004
Language of publication: English
Facility: Faculty of Law and Economics> Others - Faculty of Law and Economics
MADOC publication series: Collaborative Research Center 504> Concepts of Rationality, Decision-Making Behavior and Economic Modeling (duration 1997 - 2008)
Area of ​​Expertise: 330 economy
Subject classification: JEL: D82 M37 L15 L14,
Standardized keywords (SWD): Community marketing, quality, branded articles, product image, signaling, asymmetrical information, moral hazard
Free keywords (English): Umbrella branding, reputation transfer, signaling, experience goods
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 low quality will be detected is in an intermediate range, the probability 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 even unprofitable products may be used to stabilize the umbrella brand. However, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.
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