Pricing and Advertising of Private and National Brands in a Dynamic Marketing Channel

Article

Abstract

We consider a marketing channel where a retailer sells, along the manufacturer’s brand, its own store brand. We assume that each player invests in advertising in order to build the brand’s goodwill. One distinctive feature of this paper is the introduction of the negative effect of own advertising on other player’s goodwill stock evolution. We characterize feedback-Nash pricing and advertising strategies and assess the impact of the store brand and national brand’s goodwill stocks on these strategies in different settings. The main findings suggest first that investing in building up some equity for each brand reduces the price competition between them and propels the market power for both. Second, the retailer will pass to consumer an increase in its purchasing cost of the national brand in all situations as no coordination is taken into account to counter the double marginalization problem. Finally, the higher the brand equity of the store brand, the more the retailer invests in advertising.

Keywords

Marketing channels Private label Advertising Pricing Differential games Feedback-Nash equilibrium 

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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Long Island UniversityNew YorkUSA
  2. 2.Departamento de Economía Aplicada (Matemáticas)Universidad de ValladolidValladolidSpain
  3. 3.Chair in Game Theory and Management, GERADHEC MontréalMontréalCanada

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