Market Share and Price Setting Behavior For Private Labels and National Brands
AbstractIn this paper, we develop a framework for estimating market share and price reaction equations in an attempt to understand the nature of competitive interaction in the market for private label and branded grocery products. Specifically, we employ a 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. This enables us to consistently estimate shareprice relationships, accounting for demand-side and competitive reactions simultaneously. The incorporation of LA/AIDS demands into a structural equation framework represents an important departure from previous demand specifications in competitive analysis. In addition to its rigorous foundation in utility theory, LA/AIDS demands are especially flexible for demand-side estimation, provide consistent reaction functions on the supply side, and have particularly nice aggregation properties. In order to test the relative contribution of employing a flexible LA/AIDS functional form on the demand-side, and in a preliminary attempt to assess manufacturer-retailer interaction on the supply side, we compare our general framework (LA/AIDS demands with retailers following a proportional markup rule) to two alternative models of manufacturer-retailer interaction: Chois (1991) Manufacturer-Stackelberg (M-S) model under linear demands, as well as Shubik demands under Stackelberg conduct (Raju, Sethuraman and Dhar 1995a, 1995b). We first apply the proposed LA/AIDS framework to a sample pooled across 125 categories and 54 geographic markets in an attempt to produce result that generalize across the entire sample. We then estimate all three models using data on seven individual categories: bread, milk, pasta, yogurt, instant coffee, butter and margarine. We conclude that the LA/AIDS demand specification is preferred to the alternative linear demand specifications. Further, the empirical findings support our premise 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. Most importantly, our specification with LA/AIDS demands produced excellent overall fits, as well as reasonable demand and price response elasticities.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25209.
Date of creation: 2000
Date of revision:
Contact details of provider:
Postal: 1376 Storrs Road, Unit 4021, Storrs, CT 06269-4021
Phone: (860) 486-1927
Fax: (860) 486-2461
Web page: http://www.fmpc.uconn.edu/
More information through EDIRC
competition; competitive strategy; private labels; pricing; Demand and Price Analysis; Industrial Organization;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Connor, John M. & Peterson, Everett B., 1991.
"Market-Structure Determinants Of National Brand-Private Label Price Differences Of Manufactured Food Products,"
116099, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
- Connor, John M & Peterson, Everett B, 1992. "Market-Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 157-71, June.
- S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
- Gasmi, F & Laffont, J J & Vuong, Q, 1992.
"Econometric Analysis of Collusive Behavior in a Soft-Drink Market,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 1(2), pages 277-311, Summer.
- Gasmi, Farid & Laffont, Jean-Jacques & Vuong, Quang, 1992. "Econometric Analysis of Collusive Behavior in a Soft Drink Market," IDEI Working Papers 16, Institut d'Économie Industrielle (IDEI), Toulouse.
- Gelfand, Matthew D. & Spiller, Pablo T., 1987. "Entry barriers and multiproduct oligopolies: Do they forebear or spoil?," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 101-113, March.
- Kadiyali, Vrinda & Vilcassim, Naufel J & Chintagunta, Pradeep K, 1996. "Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?," The Journal of Business, University of Chicago Press, vol. 69(4), pages 459-87, October.
- Carter, Richard A. L. & Nagar, Anirudh L., 1977. "Coefficients of correlation for simultaneous equation systems," Journal of Econometrics, Elsevier, vol. 6(1), pages 39-50, July.
- Robert P. Leone, 1995. "Generalizing What Is Known About Temporal Aggregation and Advertising Carryover," Marketing Science, INFORMS, vol. 14(3_supplem), pages G141-G150.
- Eunkyu Lee & Richard Staelin, 1997. "Vertical Strategic Interaction: Implications for Channel Pricing Strategy," Marketing Science, INFORMS, vol. 16(3), pages 185-207.
- Greg M. Allenby & Peter E. Rossi, 1991. "Quality Perceptions and Asymmetric Switching Between Brands," Marketing Science, INFORMS, vol. 10(3), pages 185-204.
- Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
- Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-76, Fall.
- Richards, Timothy J., 2002. "Dynamic Strategic Interaction: A Synthesis Of Modeling Methods," Western Economics Forum, Western Agricultural Economics Association, vol. 1(01).
- Toro-Gonzalez, Daniel & Yan, Jia & Gallardo, Rosa Karina & McCluskey, Jill J., 2012. "Demand Estimation In The Presence Of An Unobservable Product Attribute: The Case Of Mint Quality," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123518, Agricultural and Applied Economics Association.
- Jan K. Brueckner & Dan Luo, 2013. "Measuring Strategic Firm Interaction in Product-Quality Choices: The Case of Airline Flight Frequency," CESifo Working Paper Series 4066, CESifo Group Munich.
- Jon H. Hanf & Rainer Kühl, 2005. "Branding and its consequences for German agribusiness," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 177-189.
- Richards, Timothy J. & Patterson, Paul M., 2002. "Strategic Interaction With Multiple Tools: A New Empirical Model," Working Papers 28545, Arizona State University, Morrison School of Agribusiness and Resource Management.
- Du, Ying & Stiegert, Kyle W., 2009. "Strategic Vertical Pricing in the U.S. Butter Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51712, Agricultural and Applied Economics Association.
- Dawes, John & Nenycz-Thiel, Magda, 2013. "Analyzing the intensity of private label competition across retailers," Journal of Business Research, Elsevier, vol. 66(1), pages 60-66.
- Avi Goldfarb & Qiang Lu & Sridhar Moorthy, 2007.
"Measuring Brand Value in an Equilibrium Framework,"
Food Marketing Policy Center Research Reports
099, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Daniel Toro-Gonzalez & Jia Yan & Karina Gallardo & Jill McCluskey, 2012.
"Quality Differentiation with Flavors: Demand Estimation of Unobserved Attributes,"
2012-6, School of Economic Sciences, Washington State University.
- Toro-González Daniel & Gallardo R. Karina & Yan Jia & McCluskey Jill J., 2013. "Quality Differentiation with Flavors: Demand Estimation of Unobserved Attributes," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 11, September.
- Rebecca L. O. Cleary & Rigoberto A. Lopez, 2007.
"Is Wal-Mart Good for Competition? Evidence from Milk Prices,"
Food Marketing Policy Center Research Reports
101, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Cleary, Rebecca & Lopez, Rigoberto, 2007. "Is Wal-Mart Good for Competition? Evidence from Milk Prices," Research Reports 149207, University of Connecticut, Food Marketing Policy Center.
- Bonanno Alessandro & Lopez Rigoberto A., 2005. "Private Label Expansion and Supermarket Milk Prices," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(1), pages 1-18, February.
- Michael B. Ward & Jay P. Shimshack & Jeffrey M. Perloff & J. Michael Harris, 2002.
"Effects of the Private-Label Invasion in Food Industries,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 84(4), pages 961-973.
- Ward, Michael B. & Shimshack, Jay P. & Perloff, Jeffrey M. & Harris, J. Michael, 2002. "Effects of the private-label invasion in food industries," MPRA Paper 22186, University Library of Munich, Germany.
- Zhuang, Yan & Dimitri, Carolyn & Jaenicke, Edward C., 2010. "Price Reactions And Organic Price Premiums For Private Label And Branded Milk," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116388, European Association of Agricultural Economists.
- Raj Sethuraman, 2009. "Assessing the External Validity of Analytical Results from National Brand and Store Brand Competition Models," Marketing Science, INFORMS, vol. 28(4), pages 759-781, 07-08.
- Gomez, Miguel I. & Rao, Vithala R. & Yuan, Hong, 2008. "Effects of Horizontal and Vertical Market Power on Trade Promotion Budget and Allocation in the US Supermarket Industry: An Experimental and Empirical Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Sodano, Valeria & Hingley, Martin, 2007. "Channel Management and differentiation strategies: A case study from the market for fresh produce," 105th Seminar, March 8-10, 2007, Bologna, Italy 7869, European Association of Agricultural Economists.
- Junko Kinoshita & Nobuhiro Suzuki & Harry M. Kaiser, 2002. "Explaining pricing conduct in a product-differentiated oligopolistic market: An empirical application of a price conjectural variations model," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 427-436.
- Song Zan Chiou-Wei, 2004. "The determinants of direct mail coupon usage revisited: Evidence from count panel data models," Agribusiness, John Wiley & Sons, Ltd., vol. 20(2), pages 189-200.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.