Channel Structure and Consumer Search: Competition Between Store and National Brands

ABSTRACT Despite the higher profitability of store brands, retailers persistently accommodate national brands in the same category rather than excluding them from their assortments. This paper develops a consumer search model to explain this phenomenon by analyzing three selling strategies available to a retailer who simultaneously acts as a store brand owner competing with a national brand owner. Using the separate selling format (SSF) as a benchmark, we examine how the wholesale selling format (WSF) and agency selling format (ASF) alter price competition and consumer search behavior through one‐stop shopping convenience. Our analysis yields three key findings. First, both WSF and ASF soften price competition and raise product prices relative to SSF, as consumers benefit from one‐stop shopping convenience. Second, when search costs exceed a certain threshold, high retail prices and high consumer surplus coexist: the savings from one‐stop shopping convenience outweigh the losses from elevated prices, producing an anti‐intuitive win‐win‐win outcome in which both brand owners earn higher profits, consumer surplus improves, and social welfare increases. Third, selling‐format preferences depend on search costs. When search costs are sufficiently low or high, both parties prefer the WSF. At intermediate search‐cost levels, however, the store‐brand owner prefers the ASF, whereas the national‐brand owner continues to favor WSF. These findings offer actionable guidance for retail operations managers. The coexistence of store and national brands in the same category can be rationalized as a search‐cost‐driven strategy that enhances one‐stop shopping convenience and generates system‐wide welfare gains. Thus, brand owners should calibrate their selling format decisions according to the search cost and one‐stop shopping convenience conditions in their target markets.