Suppliers' competition and manufacturer's product mix: the role of ingredient brand

This paper proposes a pricing game among a manufacturer and two competing suppliers. One of the suppliers establishes an ingredient brand, which can enhance the valuations of the end products. The equilibrium is derived to investigate the impact of the ingredient brand awareness and the production costs on the suppliers' pricing competition, the manufacturer's product mix and retail price(s), and profits. The result shows that the manufacturer may provide unique product or differentiated products, depending on the effectiveness of ingredient branding strategy. We distinguish two different monopolistic scenarios in supplier market and provide the condition for each supplier to survive. We find that the ingredient branding strategy mitigates the pricing competition between suppliers and benefits the manufacturer in a low production cost industry.