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Brand Names

Brand names are another way of economizing on scarce knowledge. Brand names are not guarantees. But they do reduce the range of uncertainty. If a hotel sign says Hyatt Regency, chances are you will not have to worry about whether the bed sheets in your room were changed since the last person slept there. Like everything else in the economy, brand names have both benefits and costs. A hotel with a Hyatt Regency sign out front is likely to charge you more for the same size and quality of room, and accompanying service, than you would pay for the same things in some locally—run independent hotel if you knew where to look. Both Kodak and Fuji film have to be better than they would have to be if boxes simply said “film,” without any reference to the manufacturer. McDonald’s not only has to meet the standards set by the government, it has to meet the standards set by the competition of Wendy’s and Burger King. If Campbell’s soup were identified on the label only as “soup” (or “Tomato Soup,” “clam chowder,” etc), the pressures on all canned soup producers to maintain both safety and quality would be less. One of the reasons for the great success of McDonald’s in Moscow—the largest in the world, with lines of people waiting to get into it—is that it was being compared to the previous band quality of service in Soviet restaurants, not to Wendy’s or burger King.
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