Collective brands

Abstract

We analyze the effect of a shared brand name, such as geographically designated agricultural brands, on incentives of otherwise autonomous firms of the same type to establish a collective reputation for product quality. When firms of the same type share the same brand name, consumers have more observations of past quality and are able to predict quality with greater precision than if brands are private. This effect increases firms’ incentive to invest in quality. On the other hand, a shared brand name may motivate free riding on the group’s reputation, reducing incentives to invest. We identify conditions under which the former effect is dominant and leads to higher quality than stand alone firms can achieve.