Private label entry as a competitive force? : an analysis of price responses in the Norwegian food sector

Abstract

According to existing theory, the introduction of a private label has an ambiguous effect on the prices of competing national brands. We undertake an empirical analysis of the effects of private label entry on national brand prices in the Norwegian food sector. We first estimate a set of 83 dynamic price regressions. The results suggest that introduction of a private label typically leads to higher prices on national brands. However, we observe a large heterogeneity in price responses. When we apply a dynamic panel data approach, the same picture emerges. We find heterogeneity with both negative and positive significant price responses. However, we also establish that highly distributed and ranked products are typically more influenced by private label entry than less distributed and ranked products (weaker national brands). We also find some support in our data that more successful PL entry as measured by the PL market share have typically a larger impact on the national brand prices.