Microeconomic analysis‐based comparative evaluation of brands
| DOI | https://doi.org/10.1108/10610429910266977 |
| Pages | 119-131 |
| Published date | 01 April 1999 |
| Date | 01 April 1999 |
| Author | Dimitrios A. Giannias |
| Subject Matter | Marketing |
Microeconomic analysis-based
comparative evaluation of
brands
Dimitrios A. Giannias
Assistant Professor of Economics, Department of Economics,
University of Crete, Crete, Greece
Keywords Brand valuation, Brands, Pricing, Product differentiation
Abstract A brand is a kind of sign by which we can distinguish one commodity from
another. Commodity prices, as well as consumers' utility and firms' profit, are affected by
brands. Presents a theoretical framework that incorporates aspects of brand in
microeconomic analysis. The theory developed makes it possible to infer the quality of
differentiated products from the price distribution of the second-hand market for that
product. A case study illustrates the workings of the methodology; the application
evaluates the quality of the Japanese motorcycle manufacturers.
I. Introduction
Branding started in the Middle Ages when merchant guilds and craft guilds
formed to control the quantity and quality of their products. Each producer
had to mark his goods so that:
(1) output could be cut back when necessary, and
(2) poor quality could be traced back to the guilty producer[1].
Trademarks were a protection to the buyer, who could then know the source
of the product.
More recently, brands have been used mainly for identification and well-
recognised brands make shopping easier. Many customers are willing to buy
new things but having gambled and won, they like to buy a``sure thing'' the
next time. Consumers often rely on brands as an indication of quality. The
hedonic framework can incorporate brands in microeconomic analysis since
it is assumed that brand together with other observable product
characteristics determines product quality.
Rosen's (1974) analysis shows that the hedonic equation is an equilibrium
that results from the interactions of the suppliers and demanders of a
differentiated product and that the hedonic equation contains information on
the underlying technologies and preferences. However, it is not easy to
extract this information. Rosen (1974) briefly discussed this possibility for a
differentiated product that had only one characteristic, but the calculations
required even for this simplified case were quite complex. This difficulty
made Rosen propose a methodology for estimating the demand and supply of
characteristics in a second stage rather than using the hedonic equation
directly.
Most of the recent work in economics using hedonic models has been based
on the seminal article by Rosen (1974) and is unsatisfying for the reasons
demonstrated by Epple (1987). The closed-form approach to hedonic models
can overcome these difficulties of the standard hedonic approach. The
objective of the closed-form solutions is to extract the parameters of the
utility or cost functions from the parameters of the hedonic equation.
The author would like to thank two unknown referees for their helpful comments and
suggestions.
Used mainly for
identification
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 8 NO. 2 1999, pp. 119-129, #MCB UNIVERSITY PRESS, 1061-0421 119
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