The Strategic Positioning of Store Brands in Retailer - Manufacturer Bargaining

Fiona Scott Morton, Florian Zettelmeyer

NBER Working Paper No. 7712
Issued in May 2000
NBER Program(s):Industrial Organization

We argue in this paper that retailers can strategically position store brands in product space to strengthen their bargaining position when negotiating supply terms with manufacturers of national brands. Using a bargaining framework we model a retailer's decision whether to carry an additional national brand or a store brand, and if the retailer chooses to introduce the latter, where in product space to locate the store brand. Store brands differ from other brands in being both unadvertised and located at a position in product space that is determined by the retailer instead of by a manufacturer. To capture the negotiation effect of store brands empirically, our paper analyses a retailer's choice of whether or not to carry a store brand in a given category. We control for other motivations for carrying a store brand that have been used in the literature. We test our model on a cross-section of categories using supermarket data from multiple retailers. The first contribution of this paper is to show theoretically that the strategic positioning of a store brand in a category changes the bargaining over supply terms between a retailer and national brand manufacturers in that category. The empirical evidence is consistent with the theory. We find that retailers are more likely to carry a store brand in a category if the share of the leading national brand is higher, but that the leading national brand share does not affect the market share of the store brand. This indicates that there may be a bargaining motive for the introduction of the store brand. We propose that this is because the retailer can position the store brand to mimic the leading national brand and present data that shows that store brands frequently imitate national brand packaging on multiple dimensions.

download in pdf format
   (351 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7712

Published: Morton, Fiona Scott and Florian Zettelmeyer. "The Strategic Positioning Of Store Brands In Retailer-Manufacturer Negotiations," Review of Industrial Organization, 2004, v24(2,Mar), 161-194.

Users who downloaded this paper also downloaded* these:
Barsky, Bergen, Dutta, and Levy w8426 What Can the Price Gap between Branded and Private Label Products Tell Us about Markups?
Barsky, Bergen, Dutta, and Levy What Can the Price Gap between Branded and Private-Label Products Tell Us about Markups?
Qian w17849 Brand Management and Strategies Against Counterfeits
Bronnenberg, Dubé, and Gentzkow w16267 The Evolution of Brand Preferences: Evidence from Consumer Migration
Waldfogel and Chen w9942 Does Information Undermine Brand? Information Intermediary Use and Preference for Branded Web Retailers
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us