Researchers have recently been interested in studying the drivers of store-brand
success as well as factors that motivate retailers to introduce store brands. In
this paper, we study the effects of the introduction of a store-brand into a particular
product category. Specifically, we are interested in the effect of store-brand introduction
on the demand as well as on the supply side. On the demand side, we investigate the
changes in preferences for the national brands and price elasticities in the category.
On the supply side, we study the effects of the new entrant on the interactions between
the national brand manufacturers and the retailer introducing the store brand, including
how these interactions influence the retailer's pricing behavior. In doing so, we
are also able to test whether the observed data are consistent with some of the commonly
used assumptions regarding retailer pricing behavior. For the demand specification
we use a random coefficients logit model that allows for consumer heterogeneity.
The model parameters are estimated using aggregate data while explicitly accounting
for endogeneity in retail prices. Our empirical results obtained from the oats product
category based on store-level data from a multistore retail chain indicate that the
store-brand introduction generates notable changes within the category. The store-brand
introduction coincides with an increase in the retailer's margins for the national
brand. We find that the preferences for the national brand are relatively unaffected
by the introduction of the store-brand. While consumers are, in general, more price
sensitive (in terms of elasticities) than they were prior to store-brand introduction,
a statistical test of the differences in mean price elasticities across stores and
between the two regimes fails to reject the hypothesis of no change in these elasticities.
Elasticities in specific stores however, do increase after the store brand is introduced.
We also find that there....