Article ID Journal Published Year Pages File Type
5078635 International Journal of Industrial Organization 2009 8 Pages PDF
Abstract
In a framework of repeated-purchase experience goods with seller's moral hazard and imperfect monitoring, umbrella branding may improve the terms of the implicit contract between seller and buyers, whereby the seller invests in quality and buyers pay a high price. In some cases, umbrella branding leads to a softer punishment of product failure, which increases the seller's value. In other cases, umbrella branding leads to a harsher punishment of product failure, which allows for a reputational equilibrium that would otherwise be impossible. On the negative side, under umbrella branding one bad signal may kill two revenue streams, not one. Combining costs and benefits, I determine the set of parameter values such that umbrella branding is an optimal strategy.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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