Selling When Brand Image Matters

Journal of Institutional and Theoretical Economics JITE, Vol. 167, No. 1, pp. 102-118, March 2011

19 Pages Posted: 9 Sep 2011 Last revised: 26 Mar 2020

See all articles by Stefan Buehler

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Daniel Halbheer

HEC Paris - Marketing

Date Written: May 30, 2010

Abstract

This paper studies profit-maximizing seller behavior when brand image affects consumer demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze 'active branding' by the seller through costly advertising. Our analysis shows that advertising, price and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of 'passive branding' emanating from the population’s consumption of the product. We demonstrate that seller profits increase in the average degree of conformity in the population whereas the price remains unaffected.

Keywords: quality, brand image, advertising, conformity, exclusivity

JEL Classification: D42, L15, L21, M37

Suggested Citation

Buehler, Stefan and Halbheer, Daniel, Selling When Brand Image Matters (May 30, 2010). Journal of Institutional and Theoretical Economics JITE, Vol. 167, No. 1, pp. 102-118, March 2011 , Available at SSRN: https://ssrn.com/abstract=1924683

Stefan Buehler (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Daniel Halbheer

HEC Paris - Marketing ( email )

Paris
France

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