Journal Article

Brand Extension as Informational Leverage

Jay Pil Choi

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 65, issue 4, pages 655-669
Published in print October 1998 | ISSN: 0034-6527
Published online October 1998 | e-ISSN: 1467-937X | DOI: https://dx.doi.org/10.1111/1467-937X.00063
Brand Extension as Informational Leverage

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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 Article.  0 words. 

Subjects: Economics

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