Private Label Introduction: Does It Benefit the Supply Chain?
University of Navarra, IESE Business School
IESE Business School - University of Navarra
November 2, 2009
IESE Business School Working Paper No. 832
Private labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyzes the channel dynamics in a category where a private label is introduced. We focus on the impact of private labels on retail and wholesale equilibrium prices, as well as on the profits of each firm of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's prices, we find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With our model, we formulate the general conditions under which retailers should consider introducing private labels.
Number of Pages in PDF File: 23
Keywords: Private label, non-cooperative game theory, supply chain efficiencyworking papers series
Date posted: November 16, 2009
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