IDEAS home Printed from
   My bibliography  Save this article

Outsourcing in place: Should a retailer sell its store-brand factory?


  • Candace A. Yano
  • Elizabeth J. Durango-Cohen
  • Liad Wagman


Several major grocery chains in the United States own factories that produce some of their store-brand products. Historically, these store-brand products have been the low-price, lower-quality alternatives to higher-priced national brands, but the quality and consumer acceptance of store brands have increased markedly in recent years. Although demand for store-brand products has grown, managing the associated factories can be costly for retailers, leading some to consider selling the factories to third parties.We study the impact of selling a retailer’s existing capacity-limited factory to a third party when a store-brand product competes with a similar national-brand product. We examine the equilibrium dynamics between two external suppliers and show how the outcome changes with respect to prices, capacity limitations, the distribution of profits, and the sequencing of pricing decisions. Among other things, we show that, surprisingly, the national brand’s equilibrium wholesale price may fall when the factory is sold. We also show that the retailer may be strictly better off if he sells the factory, with these benefits being above and beyond any savings in fixed ownership and operating costs. Taken together, these results imply that when the store-brand factory has tight capacity, the adverse effects due to double marginalization on the store-brand product from selling the factory to a third party may be partially or fully offset by a reduction in the national brand’s wholesale price.

Suggested Citation

  • Candace A. Yano & Elizabeth J. Durango-Cohen & Liad Wagman, 2017. "Outsourcing in place: Should a retailer sell its store-brand factory?," IISE Transactions, Taylor & Francis Journals, vol. 49(4), pages 442-459, April.
  • Handle: RePEc:taf:uiiexx:v:49:y:2017:i:4:p:442-459
    DOI: 10.1080/0740817X.2016.1243280

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:uiiexx:v:49:y:2017:i:4:p:442-459. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.