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Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding

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Abstract

This paper develops a theory of umbrella branding as a way to link the reputations of otherwise unrelated products. I show that while umbrella branding can credibly signal positive quality correlation, there are no equilibria in which umbrella branding either fully reveals high quality, or signals negative quality correlation. Finally, whenever umbrella branding signals perfect positive quality correlation, firms that already produce high quality products have stronger incentives to invest in developing further high quality products than firms that are currently inactive or produce low quality products.

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