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Estimation of the Effects of New Brands on Incumbents' Profits and Consumer Welfare: The U.S. Processed Cheese Market Case

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  • Kim, Donghun
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    Abstract

    We estimate the effects of new brands on market competition and consumer welfare in the U.S. processed cheese market. We find that an observed increase in consumer welfare was attributable mainly to an increase in the number of brands in the sample market, while the price effect, which measures welfare change caused by adding new brands to existing brands, decreased welfare as the prices of the existing brands increased in a large portion of sample markets. The price increase was most pronounced among the introducer’s existing brands.

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    File URL: http://purl.umn.edu/25192
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    Bibliographic Info

    Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25192.

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    Date of creation: 2004
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    Handle: RePEc:ags:uconnr:25192

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    Related research

    Keywords: consumer welfare; incumbents; new brands; random coefficient model; Agribusiness; Consumer/Household Economics; Industrial Organization;

    References

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    1. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    2. Jerry Hausman, 1997. "Cellular Telephone, New Products and the CPI," NBER Working Papers 5982, National Bureau of Economic Research, Inc.
    3. Aviv Nevo, 2001. "New Products, Quality Changes and Welfare Measures Computed From Estimated Demand Systems," NBER Working Papers 8425, National Bureau of Economic Research, Inc.
    4. Smiley, Robert, 1988. "Empirical evidence on strategic entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 167-180.
    5. Hausman, Jerry A & Leonard, Gregory K, 2002. "The Competitive Effects of a New Product Introduction: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 237-63, September.
    6. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    7. Shane M. Greenstein, 1996. "From Superminis to Supercomputers: Estimating Surplus in the Computing Market," NBER Chapters, in: The Economics of New Goods, pages 329-372 National Bureau of Economic Research, Inc.
    8. Pakes, Ariel & Berry, Steven & Levinsohn, James A, 1993. "Applications and Limitations of Some Recent Advances in Empirical Industrial Organization: Price Indexes and the Analysis of Environmental Change," American Economic Review, American Economic Association, vol. 83(2), pages 241-46, May.
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    Cited by:
    1. Kiesel, Kristin & Villas-Boas, Sofia B, 2007. "Got organic milk? Consumer valuations of milk labels after the implementation of the USDA organic seal," CUDARE Working Paper Series 1024, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
    2. Elena López & Rigoberto A. López, 2008. "Demand for differentiated milk products: Implications for price competition," Alcamentos 0805, Universidad de Alcalá, Departamento de Economía..
    3. William Allender & Timothy Richards, 2010. "Market Diversion and Market Power: California Eggs," Review of Industrial Organization, Springer, vol. 36(1), pages 37-58, February.

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