What can the price gap between branded and private label products tell us about markups (original) (raw)

Private Labels, National Brands and Food Prices

Review of Industrial Organization, 2008

We study the relationships between national brand prices and the development of private labels, using home-scanned data from a consumer survey reporting purchases for 218 food products. In a significant number of cases (144 out of 218), we observe a positive correlation (89%) between brand price and purchases of private labels. When controlling for changes in the products quality, we still find a positive relation between private label development and national brand prices. Thus, the change in the national brand product characteristics only partly explains the increase in the national brand prices. Furthermore, the price reactions of national brands differ according to the type of private labels they are facing. Finally, we demonstrate that the development of private labels has less effect on the prices of second-tier brands than prices of the leading brand.

The Impact of Maximum Markup Regulation on Prices

The Journal of Industrial Economics, 2018

We study the repeal of a regulation that imposed maximum wholesale and retail markups for all but five fresh fruits and vegetables. We compare the prices of products affected by regulation before and after the policy change and use the unregulated products as a control group. We find that abolishing regulation led to a significant decrease in both retail and wholesale prices. However, markup regulation affected wholesalers directly and retailers only indirectly. The results are consistent with markup ceilings providing a focal point for collusion among wholesalers.

Assessing the Competitive Interaction between Private Labels and National Brands

The Journal of Business, 2000

In contrast to single-equation cross-sectional studies of private label share, developing a complete understanding of the nature of the competitive interaction between national brands and private labels requires an understanding of the determinants of both demand and strategic pricing decisions by firms. Consequently, we estimate a simultaneous system of share and price for private labels and national brands. From the empirical results, two measures of market response are derived. The unilateral demand elasticity measures the pure "own" demand response, while the residual (or "total") elasticity also captures the impact of competitive price reaction (Baker and Bresnahan 1985). When taken together, these provide important strategic insights into the pricing interaction between national brands and private labels. In our empirical analysis, we employ a flexible, non-linear demand specification, the Linear Approximate Almost Ideal Demand System (LA/AIDS, Deaton and Muellbauer 1980a), and specify the price reaction equations derived under the LA/AIDS demand specification. Incorporating LA/AIDS demands into a structural equation framework represents an important departure from previous demand specifications in competitive analysis. Using the proposed LA/AIDS framework, we perform a detailed intra-category analysis using data on six individual categories: bread, milk, pasta, instant coffee, butter and margarine. In addition, in an attempt to generalize the results to a broader set of categories and in order to enable us to compare our results to previous cross-section studies, we also estimate using a sample pooled across 125 categories and 59 geographic markets. Consistent with our objectives, we find that consumer response to price and promotion decisions (demand) and the factors influencing firm pricing behavior (supply) jointly determine observed market prices and market shares. Further, estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price. Managerial implications, limitations and suggestion for future research are discussed.

Price and quality competition between brands and own brands

European Journal of Marketing, 2004

The selling prices to consumers of similar products vary considerably within the same retail outlet and between different types of retail outlet. Applying a value systems framework, the cost structures behind the selling prices of products in five product categories are identified using primary and secondary data. The quality of the competing products is also compared using conjoint analysis of the ratings given by consumers for the edible products and available chemical analysis in the case of detergents. The main explanation for the differences observed in selling prices and cost structures of competing value systems lay not in the interface costs between value chains such as logistics, as expected, nor only in advertising costs, but in the internal costs of individual value system members. In particular, the internal costs of brand manufactures are shown to be the main source of their cost disadvantage against own brands. Only in one product category was there a quality justifica...

The effect of consumer price consciousness on private label purchase

1999

Ž. Several reasons have been advanced to explain the remarkable success and growth of private label brands PLBs in Western Europe and North America. One important factor that has not been adequately highlighted is the role of consumer price consciousness and consequent consumer resistance to the prices of national brands. We develop a framework for understanding consumer price consciousness, why it varies across product categories, and how it may result in PLB purchase, and calibrate the model on category-level field data. Our findings establish that perceived category risk and perceived price unfairness of national brands in that category are significant antecedents of consumer price consciousness, and that variations in such price consciousness across categories is a significant reason why consumers buy PLBs more in some categories than in others. Additionally, we show that perceived price-quality association has a significant effect on private label purchase in risky categories.

Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

2019

any economists and policymakers are expressing concern over the possibility of increasing monopoly power in the US and the world economy. There have been decades of research in industrial organization devoted to understanding how one can (and cannot) reliably learn about the causes and consequences of market power and markups-that is, a positive difference between price and marginal cost. Starting about 30 years ago (Bresnahan 1989), the field of industrial organization adopted methods for understanding firm conduct and markets on the basis of the relevant economic primitives: demand, cost, and pricing conduct. Thus, under the assumptions that firms maximize profits and have to cover their total costs, the equilibrium price (and other outcomes, such as product choice, location, quality, and innovation) will be determined by demand, marginal costs, and fixed (possibly sunk) costs, along with the conditions of competition that shape pricing behavior. These conditions are modeled using modern game theory to incorporate imperfect competition, product differentiation, multiproduct firms, and firm entry, as well as a host of industry-specific institutions.

What Makes Consumers Willing to Pay a Price Premium for National Brands over Private Labels?

Journal of Marketing Research, 2010

The growing sales of private labels (PLs) pose significant challenges for national brands (NBs) around the world. A major question is whether consumers continue to be willing to pay a price premium for NBs over PLs. Using consumer survey data from 22,623 respondents from 23 countries in Asia, Europe, and the Americas across, on average, 63 consumer packaged goods categories per country, this article studies how marketing and manufacturing factors affect the price premium a consumer is willing to pay for an NB over a PL. These effects are mediated by consumer perceptions of the quality of NBs in relation to PLs. Although the results do not bode well for NBs in the sense that willingness to pay decreases as PLs mature, the authors offer several managerial recommendations to counter this trend. In countries in which PLs are more mature, the route to success is to go back to manufacturing basics. In PL development countries, there is a stronger role for marketing to enhance the willingn...

The Role of Strategic Pricing by Retailers in the Success of Store Brands

2003

A number of papers have evaluated demand and cost based explanations for the rapid growth and success of store brands. However there has been little empirical investigation of the strategic role of the retailer in facilitating the success of store brands. In this paper, we examine the pricing behavior of a retailer in the ready to eat (RTE) breakfast cereal category in investigating whether and how a retailer strategically favors store brands.