The Impacts of Store Brand Entry under Asymmetric Information

We investigate the impacts of a retailer's store brand entry on a national-brand manufacturer's sales decisions and firm's profitability. Under symmetric information, the manufacturer always responds by lowering the wholesale price and sales quantity and suffers when the retailer's store brand is introduced. However, when the retailer possesses private demand information, we find that the retailer's store brand entry may help reduce the information rents she earns. Consequently, it may allow the manufacturer to increase the wholesale price and/or the sales quantity, and thus the manufacturer may even gain from the retailer's store brand entry. Interestingly, in such a setting, an increase of the market size may not necessarily be beneficial for the manufacturer. These results are robust with asymmetric demand sizes, imperfect demand information, and different decision sequence