Quantitative Marketing and Economics

, Volume 8, Issue 3, pp 333–363 | Cite as

Do private labels increase retailer bargaining power?

  • Sergio Meza
  • K. Sudhir


Like any new product, private label entry increases competition within a category leading to downward pressure on both wholesale and retail prices. But, given the higher margins for private labels and potential bargaining benefits for retailers, they have incentives to help private labels gain market share. The paper addresses two questions: First, do private labels enhance a retailer’s bargaining power with respect to manufacturers? Second, given the higher profitability and potential increase in bargaining power, does the retailer strategically set retail prices to favor and strengthen the private label? We find support for the “bargaining power” hypothesis, but qualified support for the “strategic retailer pricing” hypothesis. Retailers gain bargaining power through lower wholesale prices on imitated national brands. But the gain is greater in niche categories than in mass categories, suggesting that niche national brands with limited “pull” power lose greater bargaining power. In terms of strategic pricing, the retailer, on initially introducing the private label, strategically sets prices to help private labels gain market share in high volume mass market categories. But retail prices revert to the category profit maximizing price after a year when the private label gains a stable market share.


Store brands Retailing Private labels Bargaining breakfast cereal Positioning Channels 

JEL Classification

L11 M31 D40 C10 C30 


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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Rotman School of ManagementUniversity of TorontoTorontoUSA
  2. 2.Yale School of ManagementNew HavenUSA

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