Bargaining power of quota allocation in national brand and store brand competition

We consider a supply chain in which there exist one national brand manufacturer and one retailer. Due to spatial consideration, the retailer is only allowed to sell the products under both brands up to a fixed quota. Thus, the quota allocation becomes an important issue for both brands which motivates our research. In this work, we investigate how the bargaining power in the supply chain affects the pricing decisions of both brands. We analyze two models: in the first model, the powerful manufacturer determines the quota allocation before all the pricing decisions have been made whereas in the second, the retailer can fully control the power of allocation. Our results show that in the first model the manufacturer can fully use the allocation as a tool to induce the discretionary retailer to adopt her preferred strategy. In the second model, however, same conclusions may not be observed. Furthermore, the equilibrium strategies of the supply chain in both models may be identical, particularly when the degree of substitutability is low.