Strategic effects of private labels

This paper presents a model of retailer-manufacturer interaction that focuses on retail competition between national brands and private labels positioned by retailers to compete with them. The final demand side involves vertical differentiation between the private label (low quality) and the nationa...

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Published in:European review of agricultural economics 1999-06, Vol.26 (2), p.147-165
Main Authors: Bontems, P, Monier-Dilhan, S, Réquillart, V
Format: Article
Language:English
Subjects:
Advertising
Agricultural economics
Competition
Consumers
Distribution costs
Equilibrium
Food products
House brands
Market shares
private label
Production costs
Retail stores
Social exclusion
vertical differentiation
vertical relationships
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container_title European review of agricultural economics
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creator Bontems, P
Monier-Dilhan, S
Réquillart, V
description This paper presents a model of retailer-manufacturer interaction that focuses on retail competition between national brands and private labels positioned by retailers to compete with them. The final demand side involves vertical differentiation between the private label (low quality) and the national brand (high quality). It is assumed that production costs for the national brand and the private label differ not only by sunk costs (advertising) but also by marginal costs, and that the marginal cost function is increasing and convex in quality. We study equilibrium price strategies for both agents when the quality of the private label varies and we compute the optimal private label quality from the retailer's point of view. We also determine the effect of the private label on the agents' profits. Our results suggest that the wholesale price of the branded good may increase as the private label good becomes a closer substitute for it. Moreover, introducing a private label reduces the double marginalisation problem in the vertical structural.
doi_str_mv 10.1093/erae/26.2.147
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1464-3618
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source EconLit s plnými texty; International Bibliography of the Social Sciences (IBSS); PAIS Index; Oxford Journals Online
subjects Advertising
Agricultural economics
Competition
Consumers
Distribution costs
Equilibrium
Food products
House brands
Market shares
private label
Production costs
Retail stores
Social exclusion
vertical differentiation
vertical relationships
title Strategic effects of private labels
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