Expected Firm Altruism, Quality Provision, and Brand Extensions

Posted: 13 Nov 2013

See all articles by Julio J. Rotemberg

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Abstract

A setting is considered where consumers keep track of the extent to which brands care about them, which is modeled as altruism of brands toward their target consumers. Consumers who purchase an experience good of high quality reasonably deduce that the supplier of this good is relatively altruistic toward them, and they are therefore more keen to purchase a brand extension that is also directed at them. As a result, the success of brand extensions depends on the overlap between the customers of the original product and the target customers of the extension product. The quality and demand for a brand extension can be higher if the brand is perceived as caring only for its most quality-conscious consumers rather than for all possible buyers of the good.

Keywords: quality provision, firm objectives, brand extensions, price signaling

Suggested Citation

Rotemberg, Julio J., Expected Firm Altruism, Quality Provision, and Brand Extensions. Marketing Science, Vol. 32, No. 2, 2013; pp. 325-341; DOI: 10.1287/mksc.1120.0765. Available at SSRN: https://ssrn.com/abstract=2329020

Julio J. Rotemberg (Contact Author)

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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