Review of Industrial Organization 24: 105–127, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
The Nature and Beneﬁts of National Brand/Private
ROBERT L. STEINER
3112 Q St. N.W. Washington, DC, 20007-3027, USA (E-mail: email@example.com)
Abstract. The article highlights the history of national brand/private label competition. It argues
that the private labels of large retail chains possess unique competitive weapons to constrain the
market power of powerful national brands that are not available to rival manufacturers’ brands.
Consumer welfare is maximized when private labels and national brands compete vigorously rather
than when either one is too dominant. There is some ominous recent evidence that the vigor of
national brand/private label competition is sometimes being diminished by collusion between the
two kinds of brands.
Key words: Consumer welfare, horizontal and vertical competition, industry structures, intrabrand
and interbrand competition, leading national brands, private labels, retail gross margins.
An historical study of the nature of the competition between the leading national
brands (LNBs) of manufacturers and the private label brands (PLs) of large retailers
is both interesting in itself and prerequisite to understanding the beneﬁts of this
unique form of rivalry.
These beneﬁts are predicted to occur in a structure that I have termed “the
mixed regimen”, which has been brieﬂy described earlier (Steiner, 1993) and will
be further developed here. In this structure a group of LNBs receive vigorous com-
petition from the PLs of the major chain retailers – a contest that tends to maximize
social welfare in consumer goods industries. That is, it brings about a high level of
total surplus while also stimulating innovation by manufacturers. It produces these
beneﬁts because of a combination of horizontal and vertical relationships that are
unique to this structure.
As preamble to this analysis, the next section establishes the relative importance
of private label in today’s consumer goods economy and shows that its market
share has been growing. Next, we describe two relationships that qualify as robust
regularities – the requirement for PLs to be retailed for less than their LNB counter-
parts, yet to provide the retailer with a much higher % retail gross margin (RGM).
Section IV presents evidence of the comparative quality of the two kinds of brands