EconPapers    
Economics at your fingertips  
 

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

Ronald Cotterill (), William P. Putsis and Ravi Dhar

No 51, Food Marketing Policy Center Research Reports from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: In this paper, we develop a framework for estimating market share and price reaction equations in an attempt to understand the nature of competitive interaction in the market for private label and branded grocery products. Specifically, we employ a Linear Approximate Almost Ideal Demand System (LA/AIDS, Deaton and Muellbauer 1980a), and specify the price reaction equations derived under the LA/AIDS demand specification. This enables us to consistently estimate shareprice relationships, accounting for demand-side and competitive reactions simultaneously. The incorporation of LA/AIDS demands into a structural equation framework represents an important departure from previous demand specifications in competitive analysis. In addition to its rigorous foundation in utility theory, LA/AIDS demands are especially flexible for demand-side estimation, provide consistent reaction functions on the supply side, and have particularly nice aggregation properties. In order to test the relative contribution of employing a flexible LA/AIDS functional form on the demand-side, and in a preliminary attempt to assess manufacturer-retailer interaction on the supply side, we compare our general framework (LA/AIDS demands with retailers following a proportional markup rule) to two alternative models of manufacturer-retailer interaction: Choi?s (1991) Manufacturer-Stackelberg (M-S) model under linear demands, as well as Shubik demands under Stackelberg conduct (Raju, Sethuraman and Dhar 1995a, 1995b). We first apply the proposed LA/AIDS framework to a sample pooled across 125 categories and 54 geographic markets in an attempt to produce result that generalize across the entire sample. We then estimate all three models using data on seven individual categories: bread, milk, pasta, yogurt, instant coffee, butter and margarine. We conclude that the LA/AIDS demand specification is preferred to the alternative linear demand specifications. Further, the empirical findings support our 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. Most importantly, our specification with LA/AIDS demands produced excellent overall fits, as well as reasonable demand and price response elasticities.

Keywords: competition; competitive strategy; private labels; pricing; Demand and Price Analysis; Industrial Organization (search for similar items in EconPapers)
Date: 2000
References: View complete reference list from CitEc
Citations: View citations in EconPapers (36) Track citations by RSS feed

Downloads: (external link)
http://fmpc.uconn.edu/publications/rr/rr51.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to fmpc.uconn.edu:80 (No such host is known. )

Related works:
Journal Article: Market Share and Price Setting Behavior for Private Labels and National Brands (2000) Downloads
Working Paper: Market Share and Price Setting Behavior For Private Labels and National Brands (2000) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zwi:fpcrep:051

Access Statistics for this paper

More papers in Food Marketing Policy Center Research Reports from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-11-20
Handle: RePEc:zwi:fpcrep:051