Collusive conduct in private label markets

This paper considers retailers' pricing strategies when they sell both nationally-advertised brands and quality-equivalent private-label brands (a form of store, house or own-label branding). We investigate the impact of advertising on the ability of retailers to increase profitability across all brands. Supporting recent theoretical arguments (though contradicting others), our industry study reveals that retailers can react to the heavy advertising amongst national brands by increasing prices, revenues, and economic profits generated from both national brands and private-label brands. For the category studied, retailers' strategies may include setting collusive prices for both national brands and private-label brands. We use a structural test to support this conclusion. Management interviews further support this finding.