The Implications of Supplier Learning on Retailer’s Private Label Encroachment

This study examines retailers’ decisions of whether and when to introduce private labels considering the supplier learning effect. We construct a two-period framework including a supplier and a retailer with national brand and private label divisions and elucidate equilibrium results under the decentralized structure. Our analysis shows that the retailer’s optimal choices of private label encroachment are related to the supplier learning rate and product competition intensity. Specifically, the retailer chooses the first-period encroachment of private labels when product competition is weak; when encountering fierce product competition, the retailer’s choices transition from no encroachment to the second-period encroachment and, ultimately, to the first-period encroachment of private labels as the supplier learning effect elevates. Moreover, the retailer’s first-period encroachment of private labels benefits the supplier, consumers and society, but its second-period encroachment and even no encroachment of private labels would be harmful to those firms, especially when product competition intensity is high and the supplier learning rate is relatively low. Our study offers implications for industry participants to make choices of private label encroachment and understand how it influences the supply chain ecosystem in the presence of the supplier learning effect.