Congratulations to Professor Zhiqi Chen, whose paper titled “Private Label and Product Quality under Asymmetric information” (joint with Heng Xu) has been accepted for publication in the Journal of Economics and Management Strategy – a leading field journal in Industrial Organization and Strategic Management.
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 profit 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.