Review of Industrial Organization 17: 17–39, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Market Share and Price Setting Behavior for Private
Labels and National Brands
RONALD W. COTTERILL
The University of Connecticut, Food Marketing Policy Center, Department of Agricultural &
Resource Economics, Storrs, CT 06269-4021, U.S.A.
WILLIAM P. PUTSIS, JR.
London Business School, Sussex Place, Regent’s Park, London NW1 4SA, U.K.
Abstract. 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 used in prior research. Speciﬁcally, we incorporate LA/AIDS demands and
the corresponding price reaction equations to estimate consumer price sensitivities and supply side
price strategies for national brand and private label products. Oligopolistic price interdependence is
explored further by specifying brand share, brand Herﬁndahl, and a measure of the structure of the
local retail markets in the supply side relations to evaluate explicitly the impact of market structure.
In our empirical analysis, we estimate a system of market share and price equations simultan-
eously in order to examine (i) the determinants of the demand response to pricing and promotion
decisions and (ii) the determinants of private label and national brand pricing behavior. Using data
for 143 food product categories and 59 geographic markets, we develop a model that captures the
variation in private label-national brand share and pricing across categories and markets. Key ﬁndings
include: (i) demand response to price and promotion is decidedly asymmetric, (ii) price followship
between private labels and national brands is positive, but not strong, and (iii) markets characterized
by higher national brand market share and higher supermarket concentration tend to have higher
prices for both national brands and private labels.
Key words: Competitive strategy, pricing, private labels, promotion.
The authors would like to thank Lawrence Haller and Andrew Franklin at the Food Marketing
Policy Center at the University of Connecticut for computational assistance. Comments from seminar
participants at Boston University, Columbia University, London Business School, MIT, University
of Toronto, Washington University and Yale University improved earlier versions substantially.
The authors also thank Subrata Sen for helpful comments on an earlier draft. Support from the
USDA CSREES Special Research Grant No. 97-34178-3980 at the University of Connecticut and
the Yale School of Management Faculty Research Fund is gratefully acknowledged. This is Storrs
Agricultural Experiment Station Scientiﬁc Contribution No. 1879.