Information transmission in launching a new private label product

Abstract

With the buyer’s market strengthening, retailers have begun to lead in product development by introducing their own private label products. The success of such a new product launch relies on transmission of demand information along a supply chain, yet this new phenomenon has been little researched. This paper attempts to address such an issue by modeling vertical information transmission in a supply chain consisting of a retailer and a manufacturer. The retailer would like to introduce a new private label product and knows the demand of the product to be either high or low, while the manufacturer only knows the prior distribution of the demand type. This study attempts to find whether a wholesale-price contract or a two-part tariff contract can facilitate the manufacturer to identify the demand type. The results show that the two-part tariff contract is always effective in realizing information transmission as long as the retailer’s reserve profit remains within a reasonable range.