The Impact of Store Brands on Intangible Aspects of Consumer Welfare

Abstract

This research investigated how an intangible component of consumer welfare can derive from the presence of store brands in durable-product categories. The objective was to explore the degree to which consumers can more reliably depend on price as an accurate indicator of quality in those product categories in which store brands are present. When a strong price-quality relationship exists, consumers may confidently choose a given level of quality chiefly on the basis of price. The focal measure was the correlation between price and quality, computed separately for those categories in which only national brands were present and for those categories in which both store brands and national brands were present. Examination of the price and quality of 14,234 individual brands from the U.S. and other countries tested by Consumer Reports revealed that when store brands were present the strength of the relationship between price and quality exceeded the strength of the respective relationship when store brands were absent. Counterfactual simulations confirmed the relationship.