Does a Store Brand Always Hurt the Manufacturer of a Competing National Brand?

It is generally believed that store brands hurt the manufacturers of competing national brands while benefiting retailers. In this study, we challenge this notion by studying the impacts of a store brand when it is introduced by a power retailer. We show that a store brand may benefit the manufacturer when the interaction between the manufacturer and retailer is modeled as a retailer-led Stackelberg game. This phenomenon occurs because the store brand changes the nature of the strategic interaction between the manufacturer and retailer in our model. In particular, while the interaction is always vertical strategic substitutability without a store brand, it may become vertical strategic independence with one. With the store brand, the demand for the national brand becomes larger, and the wholesale price for the national brand may increase, both of which benefit the manufacturer. Finally, the store brand may lessen the double marginalization problem of the supply chain for the national brand in the retailer-led Stackelberg game, but does so in an unconventional way: The reduction in the double marginalization effect may come from a lowered retail markup instead of a lowered wholesale price. Our results reconcile some discrepancies between theoretical predictions and empirical findings regarding the impacts of store brands on manufacturers.