# Reselling or agency selling? Sales mode selection for a manufacturer in private label competition under information asymmetry

## TL;DR

This paper explores how manufacturers should choose between reselling and agency selling when competing with private labels, considering information asymmetry and forecast accuracy.

## Contribution

The study introduces an Information Compensation Mechanism and analyzes sales mode selection under dynamic game-theoretic models with private label competition.

## Key findings

- Manufacturers benefit from information-sharing in both reselling and agency selling modes.
- Improved forecast accuracy encourages a shift to agency selling.
- Lower forecast accuracy or smaller demand variance removes first-mover advantages.

## Abstract

Big data systems enhance retailers’ predictive capabilities, providing them with a significant advantage in understanding end-market demand, increasing the competitiveness of retailers’ private labels, and significantly impacting manufacturers’ sales strategies. This paper applies dynamic game-theoretic models to explore the interaction between the retailer’s information-sharing strategies and the manufacturer’s sales mode selections when the retailer introduces a private label. Through backward induction, the equilibrium strategies of both parties can be derived. The results show that the manufacturer consistently benefits from information-sharing under both sales modes, potentially achieving a win-win outcome under the agency selling mode. Improving the retailer’s information forecast accuracy encourages a shift from reselling to agency selling mode. The retailer’s lower information forecast accuracy or the smaller demand variance offers no first-mover advantage to either the manufacturer or the retailer. Additionally, an Information Compensation Mechanism (ICM) for revenue-sharing is proposed, and contract conditions across different sales modes are discussed.