National brands versus private labels: An empirical study of competition, advertising and collusion

This article considers competition between nationally advertised brands and quality-equivalent private-label brands (a form of store, house or own-label branding). Philip Parker and Namwoon Kim investigate the impact of advertising on market power across brands. Supporting recent theoretical arguments (though contradicting others), the industry study reveals that heavy advertising among national brands can increase prices, revenues, and profits for both national brands and private-label brands. Using a representative category, the authors report nine tests to support the conclusion that the 'battle of private labels' may result in 'an alliance with private labels'. From a theoretical perspective, the study rejects the advertising as information hypothesis and the authors find that advertising sustains (significantly increases) market power and/or facilitates collusive strategies.