Private Labels: A Mechanism For Fulfilling Consumer Demand For Healthy Food?
As consumer preferences rapidly evolve with respect to health-related attributes of food, many have questioned the performance of the conventional food industry to fulfill new demand. As the structure of the industry has shifted toward conditions where retailers have access to and incentive to respond to rapidly changing information concerning consumer preferences, it is relevant to consider the conditions under which retailers will offer private labeled healthy food products not available from national brand manufacturers. This paper presents a theory of the dynamic, stochastic decision of retailers to offer private label products that are close substitutes to national brands. Within the context of salient features of healthy foods, we examine the role of uncertainty with respect to consumer demand, the relative unit cost of private label vs. national brand products, and the optimal pricing of the private label products.
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