Are Retailers’ Private Labels Always Detrimental to National Brand Manufacturers? A Differential Game Perspective

Abstract

We study the competition between national and private brands (or private labels) in a vertical channel structure. Our main objective is to analyze the impacts of the private label’s existence on strategies, sales, and profits of the members and the whole channel. We use a differential game, where the control variables are price and non-price marketing decisions, and investigate two scenarios. The first one, used as a benchmark, considers an exclusive retailer that distributes only a national brand provided by a manufacturer. The latter invests in national advertising to build its brand’s goodwill. In the second scenario, the retailer owns a private label that competes with the national brand. By computing the results under both scenarios, we provide answers to the following research questions: (1) What should the price and the non-price marketing strategies be, with and without the private label? (2) How do they compare? (3) Is the presence of a private label always profitable for the retailer and harmful to the manufacturer? One of our main results indicates that the manufacturer is not necessarily always hurt by the private label, as the existing literature suggests.