An Option-Pricing Look at the Introduction of Private Labels

Ira Horowitz

26 citations0/0 files storedJournal of the Operational Research Society

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Consumer Market Behavior and Pricing Merger and Competition Analysis Supply Chain and Inventory Management

Abstract

This paper uses an option-pricing model to explore the impact of various factors on whether and when a retailer will choose to introduce a private label in a product category that is currently the exclusive domain of a manufacturer. Among the factors considered are the retailer's and manufacturer's margins, the cost of introducing the private label, the shelf space to be devoted to the private label and by consequence the store-market share to be captured by it, and the quality of the private label.

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References

1973The Pricing of Options and Corporate Liabilities 1994Investment Under Uncertainty.2005Theory of rational option pricing 2015Raising Rivals’ Costs 1997Why Store Brand Penetration Varies by Retailer 1995The Introduction and Performance of Store Brands 1993When Do Private Labels Succeed 1996How Should National Brands Think about Private Labels

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2023Channel power shift and store brand introduction 2018Brand positioning and consumer taste information 2013The role of rebates in the hybrid competition between a national brand and a private label with present-biased consumers 2014National and store brand advertising strategies 2013The Competition between National Brands and Store Brands: Models, Insights, Implications, and Future Research Directions

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