The Benefit of Collective Reputation

62 Pages Posted: 6 Apr 2018 Last revised: 28 Nov 2022

See all articles by Zvika Neeman

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics

Aniko Oery

Yale University - Cowles Foundation

Jungju Yu

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

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Date Written: May 1, 2019

Abstract

We study a model of reputation with two long-lived firms that sell their products under a collective brand or under two different individual brands. Firms face a moral hazard problem because their quality investments are not observed. Investments can only be sustained due to reputational concerns. In a collective brand, consumers cannot distinguish between the two firms. We show that in the long run, this makes it harder to establish a good reputation because of the incentives to free-ride on the other firm’s investments. But in the short run it mitigates the temptation to milk good reputation. Consequently, a collective brand can provide stronger incentives to invest in quality if firms are sufficiently impatient. We explain the connection between incentives and the type of industry in which the firms operate as captured by the underlying signal structure and consumers’ prior beliefs. We discuss the relation to country-of-origin labelling, agricultural cooperatives, and other collective brands.

Keywords: Branding, Collective reputation, Commitment, Country of origin

Suggested Citation

Neeman, Zvika and Oery, Aniko and Yu, Jungju, The Benefit of Collective Reputation (May 1, 2019). RAND Journal of Economics, Vol. 50, No. 4, 2019, Cowles Foundation Discussion Paper No. 2068R, Available at SSRN: https://ssrn.com/abstract=3156481 or http://dx.doi.org/10.2139/ssrn.3156481

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~zvika/

Aniko Oery (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Jungju Yu

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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