The name is absent

loyalty beneath which it is impossible for the manufacturer to have sale response to
non- price strategies expenditurers. The existence of delisting means that higher
advertising and R&D expenditures increases the probability of surpassing the
threshold and allow the firm (brand) to operate in the no- delisting region. A specific
store loyalty threshold. works as an all- or nothing divide. Being above the critical
threshold of store loyalty is crucial if a brand manufacturer intends to continue to
operate as such. This minimum level of brand loyalty implies that advertising and R&D
could be useless and unprofitable below the ‘threshold level’ identified by the level of
store loyalty which therefore determines the minimum level of advertising and R&D
investment to build a brand that could be listed.

In other words, from the point of view of a manufacturer, it is not enough to have a
brand somewhere along the X-axis. It is also necessary to make sure that the brand
surpasses the critical threshold of store loyalty to be positioned in the no- delisting
region. Hence, the incentive to build a stronger brand enjoys double benefits in terms
of higher retail margins and lower risk of delisting.

Focusing again on advertising for simplicity as in the (1) above, the existence of a
threshold level due to delisting implies that, at a sufficiently high level of store loyalty,
there is a larger region of advertising increasing returns, hence a greater advertising
effectiveness and optimal advertising intensity than in the Steiner’ s model. Therefore,
we obtain:

(A*/S)dd > (A*/S)d >(A*/S)s                                           (2)

where (A*/S)dd is the advertising intensity in a dual- stage framework with delisting.

In other words, the effectiveness of advertising and R&D is even higher in a two- stage
framework with delisting since non- price strategies of innovation and differentiation
not only allow to obtain the Steiner effect of a lower retailer’ s margin but they also
allow the manufacturer brand access to retailer’ s shelf space. The ideas of Figures 1
and 2 can thus be summarized in the following proposition:

Proposition 1: Vertical competition with delisting decisions creates a further
mechanism in addition to the margin- depressing effect (the ‘Steiner effect’), leading to
even greater upstream incentives to adopt non- price strategies of innovation and
differentiation.

But Figure 2 makes an additional point. One key consequence of this mechanism is
that retailers looking for room to allocate their private labels will be more likely to
replace lower- tier brands with private labels. In other words, leading brands will
continue to be stocked by retailers as a consequence of their nature of must- have
brands, but retailers will be more likely to replace lower- tier brands.

Retailers are then motivated to substitute secondary brands the brands with lowest
margin in the delisting region. Less well- known manufacturer's brand, or tertiary
brands, are relatively in a safer position given that the retailer’ s margin on these
brands is higher than that of secondary brands.

Thus, we have the following proposition:

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