Price differentials among brands in retail distribution: product quality and service quality
AbstractWe develop a theoretical model of retail competition that include two sources of quality, one inherently linked to brand characteristics and the other linked to the retailer level of service. We then measure their contribution in explaining the observed price differentials for a sample of U.K. grocery retailer prices in the south of Coventry during the period November 1995 to March 1997. We find that retailers that offer a higher quality service sell same quality brands at higher prices. These price premia are explained solely by differences in service quality levels. We find econometric evidence that they amount to 6 percent for national brands and to a range between 9 percent and 15 percent for low-quality store brands. Besides, at a given store, the price premia paid for the national brand is positive. These differentials are very large: around 150 percent between national brands and low-quality store brands, around 40 percent between national brands and high-quality store brands. Also, the price differential between the national brand and the low-quality store brand does not increase with its service quality. Besides, the price of the high-quality store brand approaches the price of the national brand when service quality increases. Thus suggesting that stores that offer high quality service uses the level of service as a strategic tool to target the leading national brand consumers.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011017.
Date of creation: 01 Mar 2011
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store brands; brand quality; service quality;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
- J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
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