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Private Labels, Rent Shifting And Consumer Welfare

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Abstract

This paper investigates a retailer's decision to introduce a private label and asks how the retailer's access to a private label may affect the pricing of substitute national brands. We consider a model with two vertically differentiated national brand manufacturers that negotiate sequentially with a monopolist retailer over two-part tariffs. We find that when the retailer decides to introduce a private label, this generates a price increase for one of the two national brands. Moreover, when we endogenise the order of negotiations, we find that i) the retailer?s private label is always introduced, and ii) the private label always causes a price increase for the high-quality national brand only. In our model, this price increase does not occur due to a price discrimination effect, as in Gabrielsen and Sørgard (2007) ["Private labels, price rivalry, and public policy", European Economic Review, (51), 403-424], but as a result of a rent-shifting effect. The welfare implications of private label introduction are discussed.

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  • Johansen, Bjørn Olav, 2012. "Private Labels, Rent Shifting And Consumer Welfare," Working Papers in Economics 02/12, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2012_002
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    Cited by:

    1. Paul W. Dobson & Ratula Chakraborty, 2014. "How Do National Brands And Store Brands Compete?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2014-07, Centre for Competition Policy, University of East Anglia, Norwich, UK..

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    More about this item

    Keywords

    private labels; national brands; rent shifting; public policy;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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