IDEAS home Printed from
   My bibliography  Save this article

Investigating the Effects of Store-Brand Introduction on Retailer Demand and Pricing Behavior


  • Pradeep K. Chintagunta

    () (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

  • André Bonfrer

    () (Singapore Management University, Bukittimah Road, Singapore 259756)

  • Inseong Song

    () (Hong Kong University of Science & Technology, Kowloon, Hong Kong)


Researchers have recently been interested in studying the drivers of store-brand success as well as factors that motivate retailers to introduce store brands. In this paper, we study the effects of the introduction of a store-brand into a particular product category. Specifically, we are interested in the effect of store-brand introduction on the demand as well as on the supply side. On the demand side, we investigate the changes in preferences for the national brands and price elasticities in the category. On the supply side, we study the effects of the new entrant on the interactions between the national brand manufacturers and the retailer introducing the store brand, including how these interactions influence the retailer's pricing behavior. In doing so, we are also able to test whether the observed data are consistent with some of the commonly used assumptions regarding retailer pricing behavior. For the demand specification we use a random coefficients logit model that allows for consumer heterogeneity. The model parameters are estimated using aggregate data while explicitly accounting for endogeneity in retail prices. Our empirical results obtained from the oats product category based on store-level data from a multistore retail chain indicate that the store-brand introduction generates notable changes within the category. The store-brand introduction coincides with an increase in the retailer's margins for the national brand. We find that the preferences for the national brand are relatively unaffected by the introduction of the store-brand. While consumers are, in general, more price sensitive (in terms of elasticities) than they were prior to store-brand introduction, a statistical test of the differences in mean price elasticities across stores and between the two regimes fails to reject the hypothesis of no change in these elasticities. Elasticities in specific stores however, do increase after the store brand is introduced. We also find that there is considerable heterogeneity in the preferences for the store-brand. On the supply side, we test several forms of manufacturer-retailer interactions to identify retailer pricing behavior most consistent with the data. Our results indicate that the data reject several, commonly imposed, forms of interactions. In examining the nature of manufacturer interactions with the retailer, we find that the manufacturer of the national brand appears to take a softer stance in its interactions with the retailer subsequent to store-brand entry. This finding is consistent with academic research and with articles in the popular press which suggest that the store brand enhances the retailer's bargaining ability vis-à-vis the manufacturers of the national brands. We also provide results from a second product category frozen pasta) that are largely consistent with those found in the oats category.

Suggested Citation

  • Pradeep K. Chintagunta & André Bonfrer & Inseong Song, 2002. "Investigating the Effects of Store-Brand Introduction on Retailer Demand and Pricing Behavior," Management Science, INFORMS, vol. 48(10), pages 1242-1267, October.
  • Handle: RePEc:inm:ormnsc:v:48:y:2002:i:10:p:1242-1267
    DOI: 10.1287/mnsc.48.10.1242.274

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
    2. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    3. David Besanko & Sachin Gupta & Dipak Jain, 1998. "Logit Demand Estimation Under Competitive Pricing Behavior: An Equilibrium Framework," Management Science, INFORMS, vol. 44(11-Part-1), pages 1533-1547, November.
    4. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
    5. Sanjay K. Dhar & Stephen J. Hoch, 1997. "Why Store Brand Penetration Varies by Retailer," Marketing Science, INFORMS, vol. 16(3), pages 208-227.
    6. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    7. Eunkyu Lee & Richard Staelin, 1997. "Vertical Strategic Interaction: Implications for Channel Pricing Strategy," Marketing Science, INFORMS, vol. 16(3), pages 185-207.
    8. Fiona Scott Morton & Florian Zettelmeyer, 2000. "The Strategic Positioning of Store Brands in Retailer - Manufacturer Bargaining," NBER Working Papers 7712, National Bureau of Economic Research, Inc.
    9. K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
    10. Jagmohan S. Raju & Raj Sethuraman & Sanjay K. Dhar, 1995. "The Introduction and Performance of Store Brands," Management Science, INFORMS, vol. 41(6), pages 957-978, June.
    11. Fiona M. Scott Morton & Florian Zettelmeyer, 2000. "The Strategic Positioning of Store Brands in Retailer - Manufacturer Bargaining," Yale School of Management Working Papers ysm145, Yale School of Management.
    12. Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
    13. Margaret E. Slade, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 257-276.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:48:y:2002:i:10:p:1242-1267. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthew Walls). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.