What's in a Name? Information, Heterogeneity, and Quality in a Theory of Nested Names

Résumé

Collective labels are widespread in food markets, either separated or nested with private brands; the latter known as nested names. We propose a model to explain the rationale of nested names, with collective labels being effective in reaching unaware consumers while individual brands help firms to reach aware consumers. We also incorporate the decision-making within the group of producers joining collective labels, taking into account their heterogeneity in providing quality. We show that nested names emerge when consumers become more aware of information on the label's quality and when producers become more heterogeneous. Welfare may decrease, however, when the group switches to nested names, because nested names may lead to lower quality incentives for the majority producers. The results also provide insights into the historical and recent trends in food industries, such as within-label differentiation and label fragmentation, and their welfare implications.