The Market Power of Private Labels- Retailer’s Brand and Industry Effect

Abstract

In the rapidly changing international business environment of today, a company’s brand can be the key feature for a retailer to distinguish itself from other competitors and to compete with manufacturers. In fact, the dynamics of competition between these players and private labels (PL) brand power can be an important element. The main purpose of this research is to measure and explain the PL’s market power across different retailers and categories through the use of the price’s differential between national brands (NB) and PLs, using a proxy for an Lerner’s index (L) of each category.,. Assuming a Cournot behavior of oligopoly’ competitors, L=H/e (H = Herfindahl concentration index and e= elasticity of demand), the retailer market power depends simultaneously of supply characteristics (concentration) and demand characteristics (elasticity). The logic beyond this approach is that the higher the consumer’s satisfaction and brand awareness of a product related to a brand, the higher the consumer’s willingness to pay. As the willingness to pay to a PL product increases, the differential between NBs product and PLs decreases, implying a higher PL market power.