Stretching Firm and Brand Reputation
Volume: Volume 31, No. 4
Issue: Winter 2000
Pages: pp. 658-673
Authors: Luis M.B. Cabral
Title: Stretching Firm and Brand Reputation
Abstract: I consider an adverse selection model of product quality. Consumers observe the performance of the firm's products, and product performance is positively related to the firm's (privately observed) quality level. If a firm is to launch a new product, should it use the same name as its base product (reputation stretching), or should it create a new name (and start a new reputation history)? I show that for a given level of past performance (reputation), firms stretch if and only if quality is sufficiently high. Stretching thus signals high quality.
JEL Classification
Transactional Relationships Contracts and Reputation (L140 )
Information and Product Quality Standardization and Compatibility (L150 )
Brand Firm Firms Product Quality Quality Reputation