Optimal Brand Umbrella Size

19 Pages Posted: 31 Oct 2008

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 2007

Abstract

In a framework or repeated-purchase experience goods with seller s moralhazard 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. The benefits from umbrella branding may come from one of two sources: 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 an equilibrium where buyers trust in the seller s brand. Againstthese benefits, one must consider the costs of umbrella branding, namely that, in some cases, a bad signal in one product kills two streams of revenue and profit. Combining costs and benefits, I determine the set of parameter values where umbrella branding is an optimal strategy.

Keywords: branding, repeated games

Suggested Citation

Cabral, Luis M. B., Optimal Brand Umbrella Size (April 2007). NYU Working Paper No. EC-01-06. Available at SSRN: https://ssrn.com/abstract=1292671

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
192
Abstract Views
950
rank
163,777
PlumX Metrics