Strategic analysis of optimal negotiation timing in a co-opetitive distribution channel with private label encroachment

In reality, it is common for retailers to resell the upstream suppliers’ national brands while at the same time introducing their private labels to compete with them, usually referred to as private label encroachment. Private label encroachment enhances the channel power of retailers and give them higher leverage during wholesale price negotiations with the suppliers. This paper examines the optimal timing of wholesale price negotiations in a co-opetitive distribution channel comprising a supplier and a retailer by incorporating six representative negotiation timings in which the wholesale price can be negotiated earlier/later than or simultaneous with the quantity decisions of the retailer. We obtain serval interesting results. First, we find that, if the supplier negotiates wholesale price with the retailer before the latter determines the order quantity of NB product (i.e., denoted as non-order-based negotiation type), then a negotiation power shrinking (amplifying) effect for the supplier (retailer) will arise, which impairs (enhances) the supplier’s (retailer’s) power to split the remaining profit (i.e., the total surplus after extracting all supply chain parties’ reservation profits). Second, we find that three negotiation timings are most preferred by the supplier, and the supplier’s preferences over the three timings are shaped by the interplay between the negotiation power shrinking effect and the change in the size of the remaining profit. Regarding the retailer, it can be better-off when the wholesale price negotiation is earlier than the order quantity decisions.