Private-Labels and the Channel Relationship: A Cross-Category Analysis

Washington University WP OLIN-96-09

Posted: 2 Jul 1997

See all articles by Chakravarthi Narasimhan

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School

Ronald T. Wilcox

Carnegie Mellon University

Multiple version iconThere are 2 versions of this paper

Date Written: February 21, 1996

Abstract

Retailers may introduce a private-label product in a category not only to gain profits directly from the sales of the private-label but also to use as a strategic weapon to elicit concessions from the national brand manufacturers in the category. We model the competition between the national brand manufacturers and the retailer as a simple game. We show that in certain categories, the retailer can gain better terms of trade by introducing a private-label. The ability of the retailer to use the private-label for this purpose is hypothesized to be inversely related to perceived category risk and positively related to the ability of the retailer to offer a private-label of high quality. We derive closed form solutions for the pricing decisions of both the national brand manufacturer and the retailer. The implications of our model are supported by data from a cross-section of categories comprised of frequently purchased grocery items.

JEL Classification: L81, L10

Suggested Citation

Narasimhan, Chakravarthi and Wilcox, Ronald T., Private-Labels and the Channel Relationship: A Cross-Category Analysis (February 21, 1996). Washington University WP OLIN-96-09, Available at SSRN: https://ssrn.com/abstract=8714

Chakravarthi Narasimhan (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive, Campus Box 1133
Olin School of Business
St. Louis, MO 63130-4899
United States
314-935-6313 (Phone)
314-935-6359 (Fax)

Ronald T. Wilcox

Carnegie Mellon University ( email )

Baker Hall 260
Pittsburgh, PA 15213-3890
United States
412-268-2268 (Phone)
412-268-6837 (Fax)

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