Umbrella Branding and External Certification
University of Hannover; Max Planck Institute for Research on Collective Goods
University of Mannheim - Department of Economics
CEPR Discussion Paper No. DP6601
In a market environment with random detection of product quality, a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products. Alternatively, a firm can rely on external certification of the quality of one or both of its products. We characterize equilibria in which umbrella branding fully or partially substitutes for external certification. We also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information, namely whether information comes from external certification or from random detection.
Number of Pages in PDF File: 27
Keywords: certification, signalling, umbrella branding
JEL Classification: D82, L14, L15, M37working papers series
Date posted: June 6, 2008
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