PRIVATE LABELS, RENT SHIFTING AND CONSUMER WELFARE

Bjørn Olav Johansen ()

No 02/12, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: This paper investigates a retailer's decision to introduce a private label and asks how the retailer's access to a private label may affect the pricing of substitute national brands. We consider a model with two vertically differentiated national brand manufacturers that negotiate sequentially with a monopolist retailer over two-part tariffs. We find that when the retailer decides to introduce a private label, this generates a price increase for one of the two national brands. Moreover, when we endogenise the order of negotiations, we find that i) the retailer?s private label is always introduced, and ii) the private label always causes a price increase for the high-quality national brand only. In our model, this price increase does not occur due to a price discrimination effect, as in Gabrielsen and Sørgard (2007) ["Private labels, price rivalry, and public policy", European Economic Review, (51), 403-424], but as a result of a rent-shifting effect. The welfare implications of private label introduction are discussed.

Keywords: private labels; national brands; rent shifting; public policy (search for similar items in EconPapers)
JEL-codes: L11 L12 L40 L42 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2012-01-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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