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Brand Extension as Informational Leverage

Brand Extension as Informational Leverage The marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well-established brands have an advantage in introducing new products. This paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good's reputation in one market to alleviate the problem of informational asymmetry encountered in other markets. It is shown that brand extension helps a multi-product monopolist introduce a new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Brand Extension as Informational Leverage

The Review of Economic Studies , Volume 65 (4) – Oct 1, 1998

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References (23)

Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
Subject
Articles
ISSN
0034-6527
eISSN
1467-937X
DOI
10.1111/1467-937X.00063
Publisher site
See Article on Publisher Site

Abstract

The marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well-established brands have an advantage in introducing new products. This paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good's reputation in one market to alleviate the problem of informational asymmetry encountered in other markets. It is shown that brand extension helps a multi-product monopolist introduce a new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital.

Journal

The Review of Economic StudiesOxford University Press

Published: Oct 1, 1998

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