The impact of brand equity on profit premium in an equilibrium framework

Abstract

AbstractRecent research extends the estimation and analysis of structural demand and supply models to consider the concepts of brand equity and brand value and their role in product investment decisions. In this paper, we analyze data from the Dutch market for new cars to show that differences in brand equity may also entail significant differences in marginal costs. Next, we illustrate that ignoring the role of brand equity in marginal costs, as the existing literature has, ignores the possibility that investments in brand equity may actually reduce the marginal profits for the offering. This can change investment incentives and produce different market structures.