Brand Extension as Informational Leverage

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82 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)655-669
Number of pages15
JournalReview of Economic Studies
Volume65
Issue number4
DOIs
Publication statusPublished - 1998

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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