Document Type
Discussion Paper
Publication Date
1-1-2017
CFDP Number
2068R
CFDP Revision Date
2018-04-01
CFDP Pages
58
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.
Recommended Citation
Neeman, Zvika; Öry (Oery), Aniko; and Yu, Jungju, "The Benefit of Collective Reputation" (2017). Cowles Foundation Discussion Papers. 2532.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2532