An evolutionary game theoretic model for analyzing retailers’ behavior when introducing economy and premium private labels

The significant growth of Private Labels (PLs) has led to a growing competition between National Brand (NB) manufacturers, on the one hand, and retailers, on the other; while manufacturers strive to achieve enhanced customer loyalty through such measures as innovation and advertising, retailers focus their efforts on offering high-quality products. This paper considers for the first time a supply chain consisting of one NB manufacturer and a population of retailers under two scenarios. In the first, each retailer sells NB and chooses either to introduce an Economy Private Label (EPL) or not. In the second scenario, each retailer chooses either to introduce a Premium Private Label (PPL) or not. To solve the problem, an evolutionary game is introduced and the retailers’ behavior is analyzed. Using two numerical examples, parametric analysis and managerial insights are also provided. It is found that the entire population chooses the strategy of introducing a private label (EPL or PPL) and that this strategy yields greater profits for both the manufacturer and the retailers than other strategy profiles might do. In addition, it is shown that both the retailers and the manufacturer gain more profits by introducing a PPL rather than an EPL.