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

Author

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  • 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 & University of Caen) 201314, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201314
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    11. ter Braak, Anne & Deleersnyder, Barbara & Geyskens, Inge & Dekimpe, Marnik G., 2013. "Does private-label production by national-brand manufacturers create discounter goodwill?," International Journal of Research in Marketing, Elsevier, vol. 30(4), pages 343-357.
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    Cited by:

    1. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla, 2022. "The Effect of Input Price Discrimination on Retail Prices: Theory and Evidence from France," Working Papers SMART 22-06, INRAE UMR SMART.
    2. Li, Hengyu & Chen, Huangen & Chai, Junwu & Shi, Victor, 2023. "Private label sourcing for an e-tailer with agency selling and service provision," European Journal of Operational Research, Elsevier, vol. 305(1), pages 114-127.
    3. Inderst, Roman & Jakubovic, Zlata & Jovanovic, Dragan, 2015. "Buyer Power and Functional Competition for Innovation," MPRA Paper 61214, University Library of Munich, Germany.
    4. Shaobo Wu & Shiping Wen & Quan Zhou & Xinghong Qin, 2020. "Coordination of Store Brand Product’s Green Supply Chain Based on Negotiation," Sustainability, MDPI, vol. 12(9), pages 1-25, May.
    5. Bo Liao & Candace A. Yano & Minakshi Trivedi, 2020. "Optimizing Store‐Brand Quality: Impact of Choice of Producer and Channel Price Leadership," Production and Operations Management, Production and Operations Management Society, vol. 29(1), pages 118-137, January.
    6. Chambolle, Claire & Villas-Boas, Sofia Berto, 2007. "Buyer Power Through Producer'S Differentiation," CUDARE Working Papers 6866, University of California, Berkeley, Department of Agricultural and Resource Economics.
    7. Claire Chambolle & Clémence Christin, 2017. "New Product Introduction and Slotting Fees," Working Papers hal-01458949, HAL.
    8. 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.
    9. Ping Lin & Tianle Zhang & Wen Zhou, 2020. "Vertical integration and disruptive cross‐market R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 51-73, January.
    10. Iván Valdés de la Fuente & Gonzalo Escobar Elexpuru, 2022. "Is it rational for a large-retailer to sell an own-brand product similar to the branded product of a large manufacturer? A Vertical Product Differentiation Model," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, vol. 90(3), pages 77-109, February.
    11. Guo, Xiaowei & Zha, Yong & Chen, Huaping & Liang, Liang, 2023. "National brand manufacturers’ supply strategy in the presence of retailers’ store-branded lookalike packaging and consumer confusion about quality preference," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 175(C).
    12. Filippini Luigi & Vergari Cecilia, 2017. "Vertical Integration Smooths Innovation Diffusion," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(3), pages 1-22, July.

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    More about this item

    Keywords

    Private label; vertical relations; buyer power; innovation;
    All these keywords.

    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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