Econometric modeling reveals private-label entry enhances retailer profitability directly and through bargaining leverage against national brands, highlighting key supply-side gains.
Key Points
To evaluate the determinants of retailer profitability resulting from private-label entry and identify the role of supply-side bilateral bargaining.
Analyzed an empirical setting where a patent expiration coincided with private-label product entries in the grocery sector.
Estimated a structural model combining consumer demand with supply-side bilateral bargaining using manufacturer identity data.
Quantified the effects of retailer disagreement payoffs and retailer brand equity on profit outcomes.
Private-label entry generated significant, heterogeneous profit gains across retailers.
Stronger retailer bargaining power and disagreement payoffs led to higher direct earnings from store brands and indirect savings from improved wholesale pricing on national brands.
Higher retailer brand equity substantially amplified the overall profit gains realized from private-label introductions.