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Measuring Brand Value in an Equilibrium Framework

Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Faculty of Economics and Business, University of Sydney, Sydney, NSW2006 Australia
Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
agoldfarb{at}rotman.utoronto.ca
s.lu{at}econ.usyd.edu.au
moorthy{at}rotman.utoronto.ca

We propose a structural approach to measuring brand and subbrand value using observational data. Brand value is defined as the difference in equilibrium profit between the brand in question and its counterfactual unbranded equivalent on search attributes. Our model allows us to make this computation rigorously, taking into account competitors' and retailers' reactions in the real and counterfactual situations. We illustrate our method using quarterly city-level data on ready-to-eat breakfast cereals, and compare our brand value estimates with those obtained from previously used reduced-form methods. A key advantage of our methodology is that it provides estimates of the value of brands to firms—manufacturers and retailers—taking into account the brand's value to consumers as well as its impact on firm decisions.

Key Words: branding; brand equity measurement; new empirical industrial organization
History: Received: September 14, 2006;

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