Behavioral economics

Abstract

Consumer evaluation of brand extensions depends fundamentally on the perceived “fit” between the parent brand and the extension category, alongside the established quality of the parent brand. Consumers leverage brand equity as a signaling mechanism to reduce information asymmetry and perceived risk, treating the parent brand name as a credible indicator of expected performance. The successful transfer of positive affect and quality associations occurs most reliably when there is high attribute or image consistency. Conversely, incongruent or inferior extensions may cause brand dilution, eroding the parent brand’s reputation through negative feedback loops. Beyond categorical similarity, price serves as a secondary signal that can either validate or contradict the quality expectations set by the brand name. These psychological processes of categorization and signaling underscore the boundaries of trademark protection, particularly concerning consumer confusion and the preservation of brand identity under Section 43(a) of the Lanham Act. Managing these dynamics is essential for firms seeking to expand their market presence without compromising the integrity of their core brand assets. – AI-generated abstract.