Publication Date: January 2017
We study a model of collective reputation and use it to analyze the beneﬁt of collective brands. Consumers form beliefs about the quality of an experience good that is produced by one ﬁrm that is part of a collective brand. Consumers’ limited ability to distinguish among ﬁrms in the collective and to monitor ﬁrms’ investment decisions creates incentives to free-ride on other ﬁrms’ investment eﬀorts. Nevertheless, we show that collective brands induce stronger incentives to invest in quality than individual brands under two types of circumstances: if the main concern is with quality control and the baseline reputation of the collective is low, or if the main concern is with the acquisition of specialized knowledge and the baseline reputation of the collective is high. We also contrast the socially optimal information structure with the proﬁt maximizing choice of branding if branding is endogenous. Our results can be applied to country-of-origin, agricultural appellation, and other collective brands.
Branding, Collective reputation, Commitment, Country of origin