The Dynamics of Brand-Names

Abstract

The brand-names are believed to represent the reputation of a firm. However, often it was created long ago by the glories of the members physically unrelated to the firm now. How could it survive the dealth of the founding members? To address this problem, the paper presents an OLG model where an organization is purely a brand-name shared consecutively by sellers, each working for one period only, and its reputation is driven by market competition. I find that the value dynamics of brand-names are necessary part of the mechanism effecting the reputation and decides the social efficiency. I spell out fully the dynamic in the second best, in which the remote past matters for the present reputation, and the value of a brand-name increases after a success; decreases after a failure; is destroyed totally by it if the value is already low enough; and is immune to failures for a top name if it is found following honest-price norm. And I find an inverse relation between one-period profit of a firm and the time it needs to develop its brand-name fully.

Keywords: The Reputation of an Organization, Dynamics, Brand-names

JEL Classification: D23, D82