Document Type
Discussion Paper
Publication Date
1-1-2017
CFDP Number
2068
CFDP Pages
62
Abstract
We study a model of collective reputation and use it to analyze the benefit of collective brands. Consumers form beliefs about the quality of an experience good that is produced by one firm that is part of a collective brand. Consumers’ limited ability to distinguish among firms in the collective and to monitor firms’ investment decisions creates incentives to free-ride on other firms’ investment efforts. Nevertheless, we show that collective brands induce stronger incentives to invest in quality than individual brands under two types of circumstances: if the main concern is with quality control and the baseline reputation of the collective is low, or if the main concern is with the acquisition of specialized knowledge and the baseline reputation of the collective is high. We also contrast the socially optimal information structure with the profit maximizing choice of branding if branding is endogenous. Our results can be applied to country-of-origin, agricultural appellation, and other collective brands.
Recommended Citation
Neeman, Zvika; Öry (Oery), Aniko; and Yu, Jungju, "The Benefit of Collective Reputation" (2017). Cowles Foundation Discussion Papers. 2531.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2531