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Private Labels And Retail Market Concentration

Author

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  • JORGE TARZIJÁN M

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

Abstract

This paper provides an analytical framework of retailer-manufacturer interaction that focuses on retail competition between a national brand and private labels. The aim of the paper is to analyze the effects of private-label marketing on the relative power of retailers vis-à-vis national brand manufacturers, allowing for different degrees of competition in the vertical structure. We investigate how retail market concentration affects the retailers' incentives to carry private label that are substitutes for national brands. Our findings suggest that private labels decrease prices to consumers, wholesale prices, national brand manufacturer profits and the double margin of the vertical structure and increases retailers' profits. However, the magnitude of such effects depends on the concentration of the retail market. This paper also shows that incentives to horizontal integration in retail markets increase when retailers may sell private labels in addition to national brands, and that these incentives are increasing in the quality of the private labels offered by them. Our results are especially interesting for Latin- American countries since we are observing both a strong consolidation of the retail industry in most of them and the simultaneous emergence of private labels.

Suggested Citation

  • Jorge Tarziján M, 2003. "Private Labels And Retail Market Concentration," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 6(1), pages 1-20.
    • Handle: RePEc:pch:abante:v:6:y:2003:i:1:p:1-20
    as

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    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-6-N1/1Tarzijan.pdf
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    References listed on IDEAS

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    1. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," The Journal of Business, University of Chicago Press, vol. 73(1), pages 109-137, January.
    2. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    3. David E. Mills, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-528, September.
    4. Gabrielsen, Tommy Staahl & Sorgard, Lars, 2007. "Private labels, price rivalry, and public policy," European Economic Review, Elsevier, vol. 51(2), pages 403-424, February.
    5. Mills, David E, 1999. "Private Labels and Manufacturer Counterstrategies," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 26(2), pages 125-145, June.
    6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Vertical restraints; Horizontal integration;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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