Abstract
Abstract We investigate incumbent brands’ response to entry and increased competition in a large retail setting. We extend the nonprice competition and manufacturer stocking literatures by examining if incumbent brands increase quality, specifically increasing the number of varieties (product-line length), in response to entry of a new local brand in the ice cream market. We use the entry of a new, local, super-premium ice cream brand in a large supermarket chain as a quasi-natural experiment and empirically examine if incumbent ice cream brands increased the product-line length in stores carrying the new brand. Using Poisson difference-in-differences estimators, we find that incumbent brands increased the number of varieties offered by 0.9 (3 percent) after the new brand's entry, with most of the responses coming from super-premium ice cream, which increased the number of varieties offered by 2.9 (12 percent) product choices. These findings contribute new insights into quality changes, manufacturer stocking decisions, and nonprice competition associated with entry of a local brand into the food retail sector.
Highlights
Local food is an increasingly common product in retail channels such as grocery stores where packaged goods play an important role (King et al 2010; Martinez et al 2010)
Given the entry of a new, local, super-premium brand containing many different flavors, we focus our analysis on the brand-level response to a new entrant, and we model the number of varieties provided by each brand as a positive vertical quality attribute of the brand
We extend the literature on non-price competition by examining how ice cream brands compete in the number of varieties offered
Summary
Local food is an increasingly common product in retail channels such as grocery stores where packaged goods play an important role (King et al 2010; Martinez et al 2010). We examine whether and to what extent incumbent brands responded through nonprice channels by increasing the number of offerings/varieties as a quality improvement in response to entry of a new brand using difference-in-differences models.
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