Abstract:

Store brands that are strategically introduced and controlled by retailers are developing rapidly and pose a threat to incumbent national brands. However， store brands are generally imitations of national brands. This means that incumbent manufacturers can gain a competitive advantage due to the cost learning effect. The cost learning effect refers to the phenomenon that manufacturers repeatedly learn from accumulated production activities， leading to a decrease in production costs with an increase in output. Therefore， retailers should consider the impact of the cost learning effect on store brand introduction strategies. Manufacturers can also respond to store brand introduction strategies by adjusting the wholesale price of national brands.Consider a dyadic supply chain that consists of a manufacturer and a retailer. A two-period Stackelberg game model is constructed to analyze their optimal decisions under different scenarios. To exclude inventory effects， we consider the pull production mode. In the first period， the retailer resells the national brand and decides whether to introduce a store brand at the beginning of the second period. Using backward induction， their optimal decisions are obtained under different scenarios with or without cost learning effect. By comparing their equilibrium solutions in these scenarios， how cost learning effect affects both retailer’s store brand introduction strategy and manufacturer’s pricing strategy can be determined.The main result shows that a） The cost learning effect reduces the retailer's incentive to introduce store brands. b） The existence of the cost learning effect enables the manufacturer to adjust the wholesale price of the national brand in the first period to compete with the store brand. When the relative competitive strength of the store brand is very small， the manufacturer does not change the wholesale price （“Ignorance” strategy）. When the relative competitive strength of the store brand is moderate， the manufacturer reduces the wholesale price （“Resistance” strategy）. When the relative competitive strength of the store brand is large， the manufacturer raises the wholesale price （“Acceptance” strategy）. c） Numerical simulations show that when the learning rate is very small， existence of the learning effect may harm the manufacturer when the manufacturer chooses “Resistance” strategy.

Key words: cost learning effect, store brand, product competition, price decision, order quantity decision