Open AccessStrategic Competition Between Private Labels and National Brands in a Vertically Linked Market
Author(s) -
Waseem Ahmad
Publication year - 2021
Publication title -
forman journal of economic studies
Language(s) - English
Resource type - Journals
eISSN - 2710-2963
pISSN - 1990-391X
DOI - 10.32368/fjes.20211702
Subject(s) - profit (economics) , private label , competition (biology) , industrial organization , business , microeconomics , production (economics) , economics , commerce , marketing , ecology , biology
Over the past decades, the rapid emergence of private labels (PL) has created stiff competition for many established manufacturers of national brands (NB). Retailers are using PL products as a competitive weapon against NB. The present study develops and tests different theoretical models of competition under different retailer-manufacturer production arrangements for private labels using the Non-Nested Model Comparison (NNMC) approach and their impact on the pricing strategies of PLs and NBs in the Canadian retail market. The theoretical model shows that a retailer earns the highest profit when it behaves as a leader and makes the least profit when it behaves as a follower; a similar relationship holds for the NB manufacturer under different PL production arrangements. The total industry profit is the highest when the retailer and NB manufacturer behaves in a Bertrand Nash manner. Empirical results of the study show no consistent pattern of competitive interaction under various production arrangements of PL products.