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Market prices and modern retailing

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Emprical research has found that retail prices do not necessarily fall with the introduction of private label brands which today represent some 18% of all retail products sold. In this paper, we show that an equilibrium exists whereby national brands engage in heavy advertising and retailers introduce private label brands to better serve their customers. We focus our analysis on a specific type of private label brand, a quality-equivalent private label supplied by the national brand manufacturer. Our analysis suggests that in these conditions, quality-equivalnet private label will often lead to higher average prices for consumers and higher profits for retailers and manufacturers.

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