Private label encroachment and demand knowledge sharing under multi-brand competition

In this paper, we examine whether a retailer will share proprietary demand knowledge to facilitate private label encroachment by a contract manufacturer (CM) and how these interrelated decisions affect firm profitability and supply chain performance. To this end, we consider a three-echelon supply chain in which a CM produces a national brand product for an original equipment manufacturer (OEM); the product is then distributed by a retailer that also sells a store brand product to end consumers. We develop models based on two strategic dimensions: demand knowledge sharing and private label encroachment. Equilibrium analysis shows that private label encroachment and demand knowledge sharing can coexist when demand signal accuracy falls within an intermediate range; at low or moderately high accuracy levels, encroachment occurs in equilibrium without knowledge sharing. Beyond these thresholds, neither strategy is adopted. Notably, while the OEM may benefit from encroachment in the absence of knowledge sharing, its profits consistently decline when information is shared within the supply chain. Furthermore, we establish conditions under which each strategic configuration improves supply chain performance. We also extend the model to confirm the robustness of our findings across several settings, including Bertrand competition, variations in bargaining power, and encroachment failure.