How Brand Names Affect the Demand for Twin Automobiles

Abstract

In this article, the author considers the effect of brand names on demand by examining the price ratios of used twin automobiles. Twins usually are made in the same plant and have essentially the same physical attributes but different brand names. If the models of a twin pair are perceived as perfect substitutes, their relative price should equal unity. Brand names could cause the demand for twin models to differ if consumers use the brand names to make inferences about unobservable quality. Consumers also might prefer one brand to another for prestige or status. The relative prices of most of the twin pairs in the sample differ from unity, which implies that consumers do not perceive the twin models to be perfect substitutes. Parent-brand quality and other brand factors are related to the relative prices of the twin pairs. The results suggest that consumers rely on information about the parent brand to make inferences about individual products that carry the parent name. The results have implications for firms’ branding policies.