Review of Industrial Organization
12: 355–371, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
An Empirical Study of the Effect of Brand
Proliferation on Private Label – National Brand
WILLIAM P. PUTSIS, JR.
Yale School of Management, New Haven, CT 06520-8200, U.S.A.
Abstract. This paper investigates the competitive pricing interaction between national brand and
private label food products, focusing on the effect of brand proliferation. IRI scanner data from 1991
and 1992 for 135 food product categories and 59 geographic markets are used. Empirical ﬁndings are
grouped into three categories: i) price, promotion and competitive effects, ii) brand proliferation and
entry deterrence, and iii) local market effects.
Results indicate that both private label and national brand reaction functions are positively
sloped and asymmetric. Successful private label penetration, as measured by total private label
share, lowers the average price of national brands. The paper’s central ﬁnding is that the impact
of brand proliferation on market pricing behavior is multi-dimensional. First, an increase in the
number of brands increases the ability of national brand manufacturers to raise price. Second, the
effectiveness of a brand proliferation strategy depends upon the distribution of market share. The
more concentrated the brand structure, the lower the market price of national brands. Thus, the net
effect of brand proliferation strategies is dependent upon not only the number of brands, but upon
the actual distribution of brand shares. Finally, local market conditions play only a small role in the
competitive interaction between private labels and national brands.
Key words: Brand proliferation, pricing, private labels.
It has often been maintained that incumbents, in particular entrenched national
manufacturers, can preclude entry (Schmalensee, 1978; Scherer, 1980; Bonanno,
1987; Tirole, 1988) and elevate market prices (Levy and Reitzes, 1993) by pro-
liferating brands. As possible evidence of increased brand proliferation in certain
categories, the number of new grocery product introductions has grown dramat-
ically over the past decade. In 1992, the mean number of distinct brands across
135 food product categories was 38, with some categories having as many as 264
The author would like to thank the Food Marketing Policy Center at the University of Connecticut
for use of the data. Support from the Yale School of Management Faculty Research Fund is gratefully
acknowledged. Comments from Ron Cotterill andSubrata Sen onearlier drafts are greatly appreciated,
while suggestions from an anonymous reviewer improved an earlier draft substantially.