Garella, Paolo; Peitz, Martin - Department of Economics, University of Crete
of well-known quality, and a firm with an unknown brand, firm B, has to choose to produce high or low quality. Firm A … observes firm B's quality choice but consumers do not. Hence, firm B is subject to a moral hazard problem which can potentially … quality, as otherwise why would the established firm accept to form an alliance? The mechanism we discover allows for an …