Improving “national brands”: Reputation for quality and export promotion strategies

Abstract

This paper studies the effect of firm and country reputation on exports when buyers cannot observe quality prior to purchase. Firm-level demand is determined by expected quality, which is driven by the dynamics of consumer learning through experience and the country of origin's reputation for quality. We show that asymmetric information can result in multiple steady-state equilibria with endogenous reputation. We identify two types of steady states: a high-quality equilibrium (HQE) and a low-quality equilibrium (LQE). In a LQE, only the lowest-quality and the highest-quality firms are active; a range of relatively high-quality firms are permanently kept out of the market by the informational friction. Countries with bad quality reputation can therefore be locked into exporting low-quality, low-cost goods. Our model delivers novel insights about the dynamic impact of trade policies. First, an export subsidy increases the steady-state average quality of exports and welfare in a LQE, but decreases both quality and welfare in a HQE. Second, there is a tax/subsidy scheme based on the duration of export experience that replicates the perfect information outcome. Third, a minimum quality standard can help an economy initially in a LQE moving to a HQE.

Does country-of-origin matter in the era of globalisation? Evidence from cross sectional data in Uzbekistan

“…Country image is multi-dimensional and COO effects are complex. Influenced by performance inferences based on the level of economic development and consumer ethnocentrism (Cagé & Rouzet, 2015;Huddleston, 2001;Maheswaran et al, 2013), the more developed the country, the more positive the attitude towards products manufactured there (Rezvani et al, 2012). Consumers typically view foreign products from developed countries more favourably (Samiee, 1994), are often prejudiced against products from less developed countries (Nagashima, 1977;Maheswaran et al, 2013), and in developed countries prefer products from their own country first, then products from other developed countries before products from less developed countries (Ahmed et al, 2004).…”

Technological Sovereignty as Ability, Not Autarky

“…Dalton andGoksel, 2013, Dasgupta andMondria, 2018). Again, the consequences may involve inter alia an (additional) information cost of trade (Dasgupta and Mondria, 2018), restrictions of the range of available qualities (Cagé and Rouzet, 2015), informational barriers to entry of domestic firms (see Horn, 1988, Chen, 1991), and even the partial or complete breakdown of international trade (Rauch and Casella, 2003). This in turn increases the importance of reputation mechanisms like national brands, and institutions like trade intermediaries and trade networks which may remedy information asymmetries, but possibly induce new frictions (see Rauch, 2001, Rauch and Casella, 2003, Chisik, 2003, Bardhan et al, 2013, Cagé and Rouzet, 2015, Dasgupta and Mondria, 2018.…”

“…Quality standards can help in this regard (see e.g. Donnenfeld et al, 1985, Cagé andRouzet, 2015). Second, fostering R&D can support market entry by domestic forms (see e.g.…”

The Geography of NGO Activism against Multinational Corporations

“…Firm size is the most straightforward candidate to capture the propensity to donate for a campaign that goes after her: consumers donate to generate changes in the firm's behavior on the product they know. The measure of Cagé and Rouzet (2015) 15 While the fundraising potential of a campaign is usually modeled in the literature, not all papers detail the mechanism by which individuals increase their donations. Krautheim and Verdier (2016) indicate that 'consumers can be more easily convinced to donate if the campaigns goes against a firm they know well' (p.33).…”