Private Labels and Product Quality under Asymmetric Information

Zhiqi Chen and Heng Xu ()

No 19-02, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: Contrary to the existing theories of private label products, we demonstrate that the introduction of a private label product by a retailer may improve the profits of the supplier of a competing national brand product. Our theory is built on two main elements. First, the introduction of a private label product may expand the total demand for the products carried by the retailer and thus enlarge the joint profit to be split between the retailer and the supplier of the national brand product. Second, in an environment where consumers do not know the quality of the private label product, the national brand serves as a bond to assure consumers that the retailer sells high-quality products only. This quality assurance enhances the joint profit generated by the introduction of the private label product, which, in conjunction with the weakening of the retailer’s bargaining position caused by asymmetric information, may enable the national brand supplier to earn a larger profit than in the absence of the private label product.

JEL-codes: L15 L20 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2019-06-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-ipr
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Citations: View citations in EconPapers (1)

Published: Carleton Economic Paper

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Related works:
Journal Article: Private labels and product quality under asymmetric information (2021)
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