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The Strategic Effect of Private Label in a Vertical Bargaining Model

  • Li Tian
  • Ronald W. Cotterill

    ()

    (University of Connecticut)

Private label products have been studied extensively and theoretical frameworks were developed to show private label products lend their retailers bargaining power over factory brands. Because of unobservable factory or wholesale prices empirical evidence has been lacking. This paper, using an efficient bargaining model in a multilateral bargaining setup and IRI brand level data, provides for the first time empirical evidence supporting the existence of such bargaining power by retailers with strong private labels. Estimation results show that the retailers in the Boston fluid milk market are able to leverage their private label products to gain concessions when negotiating wholesale prices with two major factory brands. This suggests that the relationship between retailers and milk processors is competitive even though the retailers enjoy channel power.

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Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 100.

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Length: 37 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:zwi:fpcrep:100
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