A theory of private branding and its implication for the relative competitiveness of foreign versus domestic manufacturers

This dissertation develops and tests a new theory of private branding, a business practice under which manufacturers' products are sold to consumers under retailers' brands. The theory first argues that consumers' satisfaction with a product depends on both the performance of the manufacturer and that of the retailer. However, satisfied (or dissatisfied) consumers often cannot tell whether to attribute their satisfaction (or dissatisfaction) to the manufacturer or to the retailer, and therefore may reward (or punish) the manufacturer for the retailer's contribution to their satisfaction (or dissatisfaction), or vice versa. I call this condition "performance inseparability." Performance inseparability will trigger manufacturer-retailer conflicts and lead to an increase in intrachannel coordination costs. Although the manufacturer can impose contractual restraints on the retailer or even integrate forward into retailing to solve performance inseparability, I argue that shifting the branding of the product from the manufacturer to the retailer is a third solution. Private branding can reduce or even eliminate manufacturer-retailer conflicts caused by performance inseparability, save on intrachannel coordination costs, and therefore improve the distribution efficiency of a product.