How do consumers’ preferences for brands and branding influence a producer’s optimal behavior? A popular view on brands in the marketing literature is “that brand equity is what remains of consumer preferences and choices after accounting for physical product effects” (KELLER AND LEHMANN [2006, p. 751]). Hence, according to this view an economic model of branding should separate the analysis of branding from physical attributes such as quality. This separation is a main theme in BUEHLER AND HALBHEER  (henceforth BH), who illustrate the analysis of such non-product-related branding using two examples: branding through advertising (which BH refer to as active branding) and through usage by other consumers (passive branding). BH analyze a monopolist’s pricing and, in the case of active branding, branding decisions in amodelwith consumers having heterogeneous preferences for branding. Technically, their model of active branding builds on the economic literature on vertical differentiation, while theirmodel of passive branding is closely related to the literature on conspicuous goods. A second dimension of consumer heterogeneity, preferences for quality, is supposed to introduce the aforementioned distinction between brand and physical attributes. However, only branding may be influenced by the producer, either directly through advertising, or indirectly through the network effect in the case of a conspicuous good, whereas quality is assumed to fixed at some exogenous level.
|Number of pages||4|
|Journal||Journal of Institutional and Theoretical Economics|
|Publication status||Published - 2011|