DP6601 Umbrella Branding and External Certification

Author(s): Hendrik Hakenes, Martin Peitz
Publication Date: December 2007
Keyword(s): certification, signalling, umbrella branding
JEL(s): D82, L14, L15, M37
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6601

In a market environment with random detection of product quality, a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products. Alternatively, a firm can rely on external certification of the quality of one or both of its products. We characterize equilibria in which umbrella branding fully or partially substitutes for external certification. We also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information, namely whether information comes from external certification or from random detection.