Strategie Interaction among Differentiated Brands in a Differentiated Retail Market. Theory and Empirical Evidence

Abstract

We present a study of the formation of prices in markets where goods differ in two attributes which jointly determine a vertical differentiation among varieties. We develop a model which besides the double vertical differentiation, takes into account the influence on the final prices of the contractual structure which regulates the vertical relationship between manufacturers and retailers. The manufacturers set the level of quality of the brands through their advertising budgets and the retailers ease the access of consumers to the products of the manufacturers. The interest of the empirical analysis is that it sheds some light on the current debate in Spain on the effects of the kind of store (traditional store or hypermarket) on the final prices.