Abstract:

To better meet the rapidly changing demand of the consumers， manufacturers have been dedicated to introduce new products by extending their existed product line. However， extending product line inevitably requires more sources of critical components， which may have indirect effects on the upstream suppliers， especially when the supply of those critical components is highly concentrated thus the pricing power is controlled by suppliers. Moreover， besides supplying core components for the manufacturer， suppliers themselves may introduce their own store brands， which make the manufacturer facing the threats of substituted products competition in the demand market. At this point， whether to extend its product line when facing the supplier’s store brand threat may be an important issue for the manufacturer. Based on this point， by using game theory， under supplier’s two store brand strategies， i.e.， introduces store brand and forgoes introducing store brand， manufacturer’s two product line extension strategies models are build， solved and analyzed.In the rest of this paper， firstly， game theory is used to develop the manufacturer’s two product line extension strategies models under supplier’s two store brand strategies. Secondly， the equilibrium quantity and the optimal profits of both supplier and manufacturer are derived by the standard backward induction. Thirdly， the conditions for manufacture to extend product line under supplier’s two different store brand strategies are obtained. Finally， the impact of supplier’s two different store brand strategies on the manufacturer’s product line extension strategies is discussed.Through the above analysis， this study sheds light on the manufacturer’s product line extension strategies when facing the supplier’s store brand threat. Specifically， the supplier always introduces store brand when the marginal cost of critical components is low. Meanwhile， the introduction of store brand by the supplier may be detrimental to the extension of manufacturer’s product line. When the difference of quality level between the manufacturer’s new product and the supplier’s store brand is negligible， the introduction of supplier’s store brand makes the manufacturer unable to extend product line. When the difference of quality level between the manufacturer’s new product and the supplier’s store brand is remarkable， if the cost of core components is small， the manufacturer chooses to extend product line whether the supplier introduces store brand or not. Otherwise， the manufacturer foregoes to extend product line. What’s more， when facing the threats of supplier’s store brand threat， it is not always profitable for the manufacturer to extend product line.

Key words: supply chain, product extension, store brand