Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, November 21, 2019

Private Labels and Product Quality under Asymmetric Information

By: Zhiqi Chen (Department of Economics, Carleton University); Heng Xu (Business School, China University of Political Science and Law)
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.
URL: http://d.repec.org/n?u=RePEc:car:carecp:19-02&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2019/11/private-labels-and-product-quality-under-asymmetric-information.html

| Permalink

Comments

Post a comment