An option-pricing look at the introduction of private labels

This paper uses an option-pricing model to explore the impact of various fa ctors on whether and when a retailer will choose to introduce a private lab el in a product category that is currently the exclusive domain of a manufa cturer. Among the factors considered are the retailer's and manufacturer's margins, the cost of introducing the private label, the shelf space to be d evoted to the private label and by consequence the store-market share to be captured by it, and the quality of the private label.