Umbrella branding and the provision of quality

Arbeitspapier

Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that even unprofitable products may be used to stabilize the umbrella brand. However, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1373

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Transactional Relationships; Contracts and Reputation; Networks ; Advertising ; Information and Product Quality; Standardization and Compatibility
• Subject: umbrella branding ; reputation transfer ; signaling ; experience goods ; Absatzkooperation ; Produktqualität ; Markenartikel ; Produktimage ; Signalling ; Asymmetrische Information ; Moral Hazard

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hakenes, Hendrik ; Peitz, Martin
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/18736
• Last update: 10.03.2025, 11:44 AM CET