Private label introduction: Does it benefit the supply chain?
AbstractPrivate labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyzes the channel dynamics in a category where a private label is introduced. We focus on the impact of private labels on retail and wholesale equilibrium prices, as well as on the profits of each firm of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's prices, we find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With our model, we formulate the general conditions under which retailers should consider introducing private labels.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/832.
Length: 23 pages
Date of creation: 03 Nov 2009
Date of revision:
Private label; non-cooperative game theory; supply chain efficiency;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-COM-2009-12-11 (Industrial Competition)
- NEP-MIC-2009-12-11 (Microeconomics)
- NEP-MKT-2009-12-11 (Marketing)
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