Abstract: The introduction of store brand (SB) by retailer and direct channel by manufacturer are very prevailing business phenomenon nowadays. On the one hand, the introduction of SB cannibalizes the demands for national brand (NB) and benefit retailer by upstream entry. On the other hand, the introduction of direct channel may help manufacturer to enhance his competitiveness and mitigate the threat from SB introduction by retailer. In this paper, by using game model, the interplay between them was investigated and both parties' equilibrium strategies were found. Furthermore, the change of parties' profits in contrast to original state were analyzed in this paper. It shows that both parties may fall into prisoner's dilemma or win-win situation and the necessary conditions for these two results are found. The manufacturer's profit can be enhanced with the introduction of direct channel only when the quality level of SB is low and the sale cost of direct channel is low. When the quality level of SB is high, the retailer can benefit from the introduction of SB introduction even facing the competition from manufacturer's direct channel. In this case, retailer's profit is always enhanced and not hurt by the introduction of direct channel by manufacturer. Besides, the necessary condition that the quality of SB product is less than three quarters of the quality of NB product must be satisfied for win-win situation. And the manufacturer and retailer may fall into prisoner's dilemma when the quality level of SB is low and the sale cost of direct channel is moderate.

Key words: store brand, direct channel, sale quantity decision, game theory