Market Share and Price Setting Behavior for Private Labels and National Brands

In this paper, we focus on the nature of demand and competitive response in the market for private label and national “branded” grocery products. Specifically,we employ less restrictive functional forms than usedin prior research. Specifically, we incorporateLA/AIDS demands and the corresponding price reactionequations to estimate consumer price sensitivities andsupply side price strategies for national brand andprivate label products. Oligopolistic priceinterdependence is explored further by specifyingbrand share, brand Herfindahl, and a measure of thestructure of the local retail markets in the supplyside relations to evaluate explicitly the impact ofmarket structure.In our empirical analysis, we estimate a system of market share and price equations simultaneously inorder to examine (i) the determinants of the demandresponse to pricing and promotion decisions and (ii)the determinants of private label and national brandpricing behavior. Using data for 143 food productcategories and 59 geographic markets, we develop amodel that captures the variation in privatelabel-national brand share and pricing acrosscategories and markets. Key findings include: (i)demand response to price and promotion is decidedlyasymmetric, (ii) price followship between privatelabels and national brands is positive, but notstrong, and (iii) markets characterized by highernational brand market share and higher supermarketconcentration tend to have higher prices forboth national brands and private labels.

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