Incentives for disclosing the store brand supplier

Abstract

In contemporary private label businesses, different retailers employ different sourcing strategies for their store brands. These sourcing strategies influence consumers’ quality perceptions of store brands and the product substitution between national and store brands, but a priori, consumers have no access to the transactions between manufacturers and retailers. This raises an important question as to whether this information should be disclosed to the public. We provide a simple framework to study the impacts of store brand supplier disclosure on the distribution channel parties. We show that, when supplying a retailer’s store brand, a national brand manufacturer may benefit from disclosing this information, and the national brand manufacturer’s and retailer’s incentives for information disclosure are completely aligned. A conflict of interest emerges when the store brand is supplied by a third party. We prove that both the retailer and the national brand manufacturer may adopt a non-disclosure strategy when the quality perception difference resulting from different store brand suppliers is sufficiently small. Paradoxically, in such an equilibrium, mandatory information disclosure is detrimental to consumer welfare.