The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion

The Impact of Store Brands on Manufacturer Trade Deals and Retail Price Promotion

1988Working Paper No. 1026

In this research, we examine the nature of promotional pricing activity by manufacturer and retailer. We analyze the relationship as a single period sequential game between a manufacturer offering a single brand A and an independent retailer who sells brand A and its own store brand B. We begin by showing, in the absence of store brand competition, that while the retailer will discount the price of brand A to take advantage of consumer stockpiling behavior, the manufacturer will not offer trade deals. We then show, in the presence of store brand competition, the conditions under which the manufacturer will use trade deals as an incentive to achieve favorable retail pricing for brand A relative to the store brand.