Go Upscale? Quality Competition between National Brand and Store Brand

25 Pages Posted: 18 Apr 2018  

Tulika Chakraborty

John Molson School of Business, Concordia University

Satyaveer Singh Chauhan

John Molson School of Business, Concordia University

Xiao Huang

John Molson School of Business, Concordia University

Date Written: April 18, 2018

Abstract

It is commonly assumed in private label literature that store brands are of lower quality than competing national brands. In this paper, we contest this notion by studying quality competition between a national- brand manufacturer and a store-brand retailer. The manufacturer sells its national-brand products through the retailer who produces a competing store brand at the same time. The two parties first invest in their brand qualities, after which the manufacture determines the wholesale price for the national brand and the retailer decides the retail prices for both brands. With a general quality-dependent cost structure, we explicitly characterize the equilibrium in both price and quality levels under various channel power structures. The results suggest that the store brand could possibly be of higher quality than the national brand even in absence of cost disparity; however, the store brand will charge a lower retail price whether its quality is superior to the national brand or not. Further, price competition and quality competition bear opposite implications on equilibrium solutions as well as profitability levels. Surprisingly, the manufacturer may benefit from a more costly production or quality investment scenario, while both the retailer and the supply chain will suffer from the same. The paper highlights the importance of accounting for quality decisions in the study of private label products.

Keywords: private label, store brand, game theory, competition, quality, distribution channels, power structure, brand management

JEL Classification: M11, L22, L60

Suggested Citation

Chakraborty, Tulika and Chauhan, Satyaveer Singh and Huang, Xiao, Go Upscale? Quality Competition between National Brand and Store Brand (April 18, 2018). Available at SSRN: https://ssrn.com/abstract=3164711 or http://dx.doi.org/10.2139/ssrn.3164711

Tulika Chakraborty

John Molson School of Business, Concordia University ( email )

Montreal
Canada

Satyaveer Singh Chauhan

John Molson School of Business, Concordia University

Montreal
Canada

Xiao Huang (Contact Author)

John Molson School of Business, Concordia University ( email )

1455 de Maisonneuve Blvd West
Montreal, Quebec H3G 1M8
Canada

HOME PAGE: http://www.xiaohuang.ca

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