Explaining National Brands and Private Labels Price Differentials: A Theoretical Model

In the rapidly changing business environment of today, retailers’ private labels, and its associated power, can be a critical element to help retailers distinguish from competitors and to compete with national brands manufacturers. The present research suggests that the price differentials between NBs and PLs can be explained simultaneously by two distinctive factors: (1) retailers power and, (2) specific product categories characteristics. To study this phenomenon, the authors propose a theoretical modeling approach to estimate across multiple categories and retailing chains these two effects. This model allows its application in markets with different concentrations levels, testing for the importance of the market structure in determining retailers’ power.