Brand Extension as Informational Leverage
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 help a multi product monopolist introduce new experience good with less price distortion. Thus, the paper provides a theoretical foundation for the concept of brand capital.
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