Impacts of Power Structure on Supply Chain with a Store Brand

Abstract

In a framework where both power structure and consumer heterogeneity (brand loyalty and different willingness-to-pay for perceived quality) count, we study six noncooperative games (two Stackerberg and one Nash games with and without a store brand) between a national-brand manufacturer and a store-brand retailer. Our results contribute to the theoretical literature on store brand in four aspects: (a) revealing that the mechanism whereby store brands alleviate double-marginalization problem varies with supply-chain power structures; (b) finding that it is the power manufacturer with a low-loyalty national brand that suffers most from the store brand entry; (c) finding that a category follower retailer is more inclined to introduce its store brand than a power one, and should optimally position its store brand close to the low-loyalty national brand supplied by a power manufacturer; (d) showing that the store brand may lead the manufacturer and the retailer to be trapped in the prisoners’ dilemma.