store brands by incorporating the notion of delisting as a distinct and further source
of increasing returns to non- price strategies of product differentiation and innovation.
In our conceptual framework, a retailer’ s private label competes with asymmetric
national manufacturers brands. The strength of a manufacturer brand plays a key role
in affecting the retailer’ s margin and its delisting decisions.
We started from the Steiner’ s hypothesis of a negative relationship between the
strength of national brands and the retailer’ s margin. However, while Steiner focused
only on the margin depressing effect, the key intuition provided by our framework is
that 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 the manufacturer the benefit of a lower retailer’ s margin but also a greater
probability of avoiding delinsting. Thus, vertical competitition and retailers’ delisting
decisions create a further mechanism, in addition to the margin depressing effect (the
‘Steiner effect’), leading to even greater incentives to adopt non- price strategies. This
‘delisting effect’ increases the effectiveness of advertising and R&D expenditure.
The intuition is that it is vital for manufacturers willing to remain sellers of branded
products to keep brand loyalty of their brands at a level higher than retailer’ store
loyalty. And the only way to pursue this goal and avoid to be involved into the risk of
being delisted is to boost brands.
We also show that the risk of being delisted is higher for second- tier brands. Retailers
have strong incentives to replace secondary brands with private labels so that these
brands face intense vertical competitive pressures.
The framework developed is useful to organizing and interpreting several empirical
patterns. The evidence provided by recent empirical works is consistent with the
framework’ s predictions.
The mechanisms examined are still waiting for more formal theoretical and empirical
analyses. More systematic efforts in this direction is needed. But there are good
theoretical and empirical reasons for concluding that vertical competition affects
positively food product innovation and differentiation contributing to explain the
increasing relevance of non- price strategies in the food industry.
But our framework highlights several areas which deserve more exploration. Both
theoretical and empirical.research is needed to examine formally the issues here
provided at an intermediate formal level. One area that might benefit from more
exploration, for instance, regards the trends towards high quality store brands. A
further important topic is the impact of retailers’ private label programs on store
loyalty. The empirical research about the the role of store brands in building store
loyalty is clearly a topic issue. An important step for further research would be to
extend the analysis of welfare implications. Our framework does not support the
hypothesis that large- scale retailing, buyer power and store brands lead to negative
impacts on upstream incentives. This does not imply that retail concentration might
not lead to negative implications for social welfare. But the channel leading to social
loss might have more to do with static efficiency loss due to retail prices and retailers
market power in local markets rather than with negative consequences of the retail
industry’ s concentration on upstream dynamic efficiency. In any case, the overall
impact of vertical competition on social welfare still needs to be analysed and should
represent a crucial area of research in the next years.
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