Price competition and private labels in the U.S. packaged salad market

ABSTRACT

We study the price competition in the U.S. packaged salads market by testing two price competition hypotheses: Bertrand competition versus sequential pricing model. The former is standard for oligopoly pricing in the IO literature. The latter provides a formal mechanism for second-mover, price-undercutting behaviour by private-label brands, owned by mainstream supermarkets, that grew their market share dramatically in the second half of the 2000s. Applying Vuong and Gasmi (1991)’s test, we show that observed market prices and market shares fit best to Bertrand competition.

KEYWORDS:

• Private label
• Bertrand competition
• sequential pricing
• Vuong test

JEL CLASSIFICATION:

• Q13
• C52
• L11
• L13

Disclaimer

The results are researchers’ own analyses calculated and derived based in part on data from The Nielsen Company (US), LLC and marketing databases provided through the Nielsen Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the Nielsen data are those of the researchers and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.

Disclosure statement

No potential conflict of interest was by the authors.

Notes

¹ Note that our sequential pricing model is closely related to the famous Stackelberg leadership model. In the sequential pricing model, however, price leaders (i.e. the national brands) suffer from a first-mover disadvantage, rather than a first-mover advantage in Stackelberg’s quantity competition model.

² Such a hypothesis is difficult to verify directly by observing supermarkets’ pricing behaviours due to the non-transparency of their promotion schemes.