On the Competitive Interaction Between Private Label and Branded Grocery Products

Recent research in marketing has focused on cross-category variation in the market share of private label products, while recent work in the economics and industrial organization literature has focused on the determinants of firm price setting behavior. In this paper, the authors develop a framework for estimating market share and price reaction equations simultaneously in an attempt to understand the nature of competitive interaction in the market for private label and branded grocery products. Empirical findings support the author's premise that consumer response to price and promotion decisions (demand) and the factors influencing firm pricing behavior (supply) jointly determine observed market prices and market shares. More specifically, the authors find a positive relationship between share and price on the supply side reflecting market power influences and a traditional negative relationship between share and price on the demand side. Finally, when Oligopolistic interdependence is measured by specifying brand share, brand Herfindahl, and local retail market structure measures, results indicate the branded price is higher in markets dominated be national brands. Key Words: private labels, pricing, competitive strategy, promotion