Optimal Production Channel for Private Labels: Too Much or Too Little Innovation?

21 Pages Posted: 6 May 2015

See all articles by Claire Chambolle

Claire Chambolle

Ecole Polytechnique, Paris - Laboratoire d'Econometrie; National Institute for Agricultural Research (INRA)

Clémence Christin

Centre de Recherche en Économie et Management (CREM)

Guy Meunier

Ecole Polytechnique, Palaiseau

Date Written: Summer 2015

Abstract

We analyze the impact of the private label production channel on innovation. A retailer may either choose to integrate backward with a small firm (insourcing) or rely on a national brand manufacturer (outsourcing) to produce its private label. The trade‐off between insourcing and outsourcing strategies is a choice between too much or too little innovation (i.e., quality investment) on the private label. When insourcing, an outside‐option effect leads the retailer to overinvest to increase its buyer power. When outsourcing, a hold‐up effect leads to underinvestment. In addition, selecting the national brand manufacturer may create economies of scale that spur innovation.

Suggested Citation

Chambolle, Claire and Christin, Clemence and Meunier, Guy, Optimal Production Channel for Private Labels: Too Much or Too Little Innovation? (Summer 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 2, pp. 348-368, 2015, Available at SSRN: https://ssrn.com/abstract=2602995 or http://dx.doi.org/10.1111/jems.12098

Claire Chambolle (Contact Author)

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

1 rue Descartes
Paris, 75005
France
(33) 01 55 55 82 58 (Phone)
(33) 01 55 55 84 28 (Fax)

National Institute for Agricultural Research (INRA)

147, rue de l'Universite
Paris Cedex 07, 78-Yvelines 75338
France

Clemence Christin

Centre de Recherche en Économie et Management (CREM) ( email )

7, place Hoche
Rennes, Bretagne 35065
France

Guy Meunier

Ecole Polytechnique, Palaiseau ( email )

Route de Saclay
Palaiseau, 91128
France

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