The benefit of collective reputation

We study a model of reputation with two long-lived firms who operate under a collective brand or as two individual brands. Firms' investments in quality are unobserved and can only be sustained through reputational concerns. In a collective brand, consumers cannot distinguish between the two fi...

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Bibliographic Details
Published in:The Rand journal of economics 2019-12, Vol.50 (4), p.787-821
Main Authors: Neeman, Zvika, Öry, Aniko, Yu, Jungju
Format: Article
Language:English
Subjects:
Brands
Companies
Consumers
Incentives
Milk
Reputations
Temptation
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Summary:We study a model of reputation with two long-lived firms who operate under a collective brand or as two individual brands. Firms' investments in quality are unobserved and can only be sustained through reputational concerns. In a collective brand, consumers cannot distinguish between the two firms. In the long run, this generates incentives to free-ride on the other firm's investment, but in the short run, it mitigates the temptation to milk a good reputation. The signal structure and consumers' prior beliefs determine which effect dominates. We interpret our findings in light of the type of industry in which the firms operate.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12296