Wholesale Pricing with Asymmetric Information About the Quality of a Private Label

Abstract This article derives the optimal wholesale tariff that is proposed by the monopolistic manufacturer of a branded product to a monopolistic retailer if the retailer also sells a private label whose quality is unobserved by the brand manufacturer. The focus is on market-share contracts where the manufacturer controls the quantities of both products. To learn the quality of the private label and diminish the retailer’s information rent, it distorts the quantity of the branded product downwards and that of the private label upwards. The manufacturer can control the quantity of the private label if it combines an excess payment with an end-of-year repayment.