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Optimal production channel for private labels: Too much or too little innovation?

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Author Info

  • Claire Chambolle

    (INRA, UR1303 ALISS and Department of Economics Ecole Polytechnique, France)

  • Clémence Christin

    (Normandie University, Caen, Faculty of Economics and Business Administration - CREM-CNRS UMR6211, France)

  • Guy Meunier

    (INRA,UR1303 ALISS and Department of Economics Ecole Polytechnique, France)

Abstract

We analyze the impact of the private label production channel on innovation. A retailer may either choose a competitive fringe or rely on a brand manufacturer to produce its private label. The trade-o between the two channels is a choice between too much or too little innovation, i.e. quality investment, on the private label. On the one hand, when choosing the competitive fringe, the retailer over-invests to increase its buyer power. On the other hand, when the brand manufacturer is selected, a hold-up e ect leads to under-investment. In addition, selecting the brand manufacturer may create economies of scale that spur innovation.

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Bibliographic Info

Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201314.

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Date of creation: Apr 2013
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Handle: RePEc:tut:cremwp:201314

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Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
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Related research

Keywords: Private label; vertical relations; buyer power; innovation;

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  1. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
  2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  3. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-28, Fall.
  4. Soberman, David A. & Parker, Philip M., 2004. "Private labels: psychological versioning of typical consumer products," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 849-861, June.
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