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

Collective labels are widespread in food markets, either separated or nested with private brands, in this latter case then 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 helping firms in reaching expert consumers. We also incorporate the decision-making process within the group of producers joining collective labels, taking into account their heterogeneity in providing quality. Results show that nested names emerge when consumers become more aware about the label's quality information and when producers become more heterogeneous. Welfare tough may decrease when the group switches to nested names, as they reduce incentives to provide quality for less efficient producers. The results provide insights also to the historical and recent trends in food industries, such as within-label differentiation and label fragmentation, and their welfare implications.