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Assessing the Impact of Retailer Store Brand Presence on Manufacturer Brands in an Equilibrium Framework

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Author Info

  • Michael Cohen

    ()
    (New York University)

  • Ronald W. Cotterill

    ()
    (University of Connecticut)

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    Abstract

    This article assesses the impact of retailer own-labeled products on manufacturer brand prices, profitability, and consumer welfare. Using chain-level retail scanner data from Boston's white uid milk market the analysis estimates a random coecients logit demand model employing a mathematical programming equilibrium constraint(MPEC) method. One can compute pro t margins implied for a set of pricing games using estimated demand parameters. Nonparametrically identi ed non-nested tests identify the most likely pricing game for the Boston white uid milk market. Results from this analysis indicate that branded milk manufacturers are Stackelberg leaders to retailers and store brand milks are procured at or near cost. This baseline model of the market is matched against a series of counterfactual markets to assess the impact of strong store brands. One counterfactual simulation considers the absence of the leading retailer's own labeled milk. Another considers the market without store brand milks. Simulation results indicate that strong store brands increase channel profits, retailer pro ts, and consumer welfare, while having mixed effects on equilibrium manufacturer brand retailer prices. In addition results testify that with no store brand milk consumer welfare is approximately 11.5% lower.

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    File URL: http://fmpc.uconn.edu/publications/rr/rr119.pdf
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    Bibliographic Info

    Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 119.

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    Length: 32 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:zwi:fpcrep:119

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