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

Author

Listed:
  • 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.

Suggested Citation

  • Claire Chambolle & Clémence Christin & Guy Meunier, 2013. "Optimal production channel for private labels: Too much or too little innovation?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201314, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201314
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    File URL: https://crem-doc.univ-rennes1.fr/wp/2013/201314.pdf
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    References listed on IDEAS

    as
    1. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    2. 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.
    3. 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.
    4. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
    5. repec:eee:ijrema:v:30:y:2013:i:4:p:343-357 is not listed on IDEAS
    6. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-528, Fall.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Claire Chambolle & Clémence Christin, 2017. "New Product Introduction and Slotting Fees," Working Papers hal-01458949, HAL.
    2. Chambolle, Claire & Villas-Boas, Sofia B., 2015. "Buyer power through the differentiation of suppliers," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 56-65.
    3. Claire Chambolle & Sofia Villas-Boas, 2007. "Buyer Power through Producer's Differentiation," Working Papers hal-00243058, HAL.
    4. Inderst, Roman & Jakubovic, Zlata & Jovanovic, Dragan, 2015. "Buyer Power and Functional Competition for Innovation," MPRA Paper 61214, University Library of Munich, Germany.

    More about this item

    Keywords

    Private label; vertical relations; buyer power; innovation;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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