Accommodation in the vertical supply chain: Implications of manufacturer dual tracking

Abstract Research Summary The prevalence of dual tracking, in which upstream manufacturers simultaneously produce branded and private‐label products for downstream retailers, has increased substantially in recent years, driven by growing consumer demand for private‐label products. This paper examines the implications of manufacturer dual tracking by exploiting a setting in the ready‐to‐eat breakfast cereal industry where a leading branded manufacturer began supplying both products to retailers. We find that, because of this change in the vertical relationship, private‐label product introductions and advertising declined for products that directly imitated the dual‐tracking manufacturer's branded products. Changes in retailer behavior suggest that retailers accommodated the dual‐tracking manufacturer by selectively adjusting their private‐label portfolios. Dual tracking can therefore improve a manufacturer's bargaining position against retailers and reduce downstream imitation. Managerial Summary Manufacturers have increasingly produced not only their own branded products but also private‐label products for retailers that compete with those brands. This phenomenon, known as dual tracking, carries benefits and risks for manufacturers. While producing private‐label products can utilize excess capacity, these products directly compete with the branded counterpart. We study the implications for firms engaging in dual tracking and show that doing so gives manufacturers greater bargaining power in their relationships with retailers. Firms can leverage this change in bargaining power to reduce imitation by retailers' private‐label products, lessening competition concerns. Our results show that retailers reduced the introduction and advertising of private‐label products that directly compete with the dual‐tracking manufacturer.