EconPapers    
Economics at your fingertips  
 

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: L20 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-ipr
Date: 2019-06-03
References: Add references at CitEc
Citations: Track citations by RSS feed

Published: Carleton Economic Paper

Downloads: (external link)
http://www.carleton.ca/economics/wp-content/uploads/cep19-02.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:19-02

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Carleton Economic Papers from Carleton University, Department of Economics C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada.
Bibliographic data for series maintained by Sabrina Robineau ().

 
Page updated 2020-01-12
Handle: RePEc:car:carecp:19-02