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Private labels: psychological versioning of typical consumer products (RV of 2003/77/MKT)

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The objective of this paper is to demonstrate that higher category prices and higher advertising are consistent with markets where low-priced private label products have increased their importance. The authors present a simple model based on the idea that a private label is nothing but a version of the national brand without the perceived quality enhancement provided by advertising. The unadvertised private label allows a channel with monopoly power to implement a form of second degree price discrimination between customers who want advertised brands and those who do not. Contrary to the view espoused in the popular business literature, we show that this can lead to either increases or decreases in average category prices. In conditions of media fragmentation and increasingly high costs to produce advertising, the model predicts that increased private label availability leads to higher average category prices.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-43.pdf

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Copyright INSEAD. All rights reserved