Buying Cheap: Brand Switching During Economic Distress and Its Disparate Impact on Consumers

Problem definition : Improving the surplus of low-income consumers during economic distress is of primary concern for many governments. This paper uses an economic model to investigate consumers’ brand switching during economic distress and highlights its disparate impact on low-income consumers. Our modeling framework also captures how retailers and national-brand manufacturers strategically adjust the market prices in response to brand switching and shelf space constraints. To generate prescriptive insights, we also analyze the effectiveness of commonly observed government interventions that fall into two major categories: (i) consumer-focused (e.g., cash subsidy) and (ii) retailer-focused (e.g., price control). Methodology/results : Our analysis indicates that market access for low-income consumers can decline significantly because of the brand switching behavior. Furthermore, not all government interventions are equally effective in increasing the welfare of low-income consumers. In fact, retailer-focused schemes such as price control (PC) can backfire and decrease access for low-income consumers. Although cash subsidy (CS) can increase the surplus of low-income consumers, it is always at the expense of high-income consumers. Managerial implications : We study an important but understudied challenge that highlights how strategic behavior by retailers can exacerbate affordability and accessibility concerns during economic distress. Model calibration using NielsenIQ Homescan Panel data shows that our model captures the data well and generates practical insights for policymakers. These results suggest that the success of government interventions depends critically on whether they account for the strategic behavior of different stakeholders in the supply chain.