Private labels and exports: trading variety for volume

Abstract

This paper explores the role of private label trade intermediation in shaping the range and diversity of exports and imports. Whereas direct sales maintain a firm’s unique product characteristics, or ‘brand equity’, trade through an intermediary often takes the form of ‘private label’ sales, under which multiple firms’ output is pooled and re-sold under a new private label brand created by the intermediary. This paper shows that these private label arrangements result in greater total export and import volumes and lower average prices for consumers, but fewer independent varieties available to consumers in equilibrium. Normative implications are mixed: consumers trade variety for volume, independent exporters face greater competition from the new private label products, and intermediary firms can capture more of the gains from trade. We explore the implications of competition at the intermediary level and trade costs for the equilibrium pattern of private label and direct exporting and importing activities.