Working Paper: CEPR ID: DP16948
Authors: Roman Inderst; Raphael Kuhlmann
Abstract: Store brands are a frequent phenomenon in today’s retailing landscape. When wholesale prices for national brands are affected by a cartel, retailers’ may still be able to procure store brands competitively, either as they are procured from different sources and under different formats or as retailers are vertically integrated. While this suggests to ignore store brands when calculating retailer (or even consumer) damages, we show that, at least from an economist’s perspective, this is wrong. The first part of this article provides the economic foundations for how we should expect retailers to optimally adjust their store brand prices when facing higher wholesale prices on national brands. We identify two opposing effects, a “demand diversion effect” and a “margin effect”, which could, in principle, lead to both higher or lower store brand prices when there is a cartel of brand manufacturers. While the integration of store brands into damage calculation is thus a priori ambiguous from a consumers’ perspective, we show that the presence of store brand unambiguously mitigates retailers’ damages. We provide calculations for the German coffee cartel.
Keywords: cartel; damages; umbrella claims; store brands; damage mitigation
JEL Codes: D43; K21; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher prices for national brands (D49) | increased demand for store brands (D12) |
| increased wholesale prices (L11) | decrease in retailer's margin (L81) |
| decrease in retailer's margin (L81) | decrease in price of store brands (D12) |
| presence of store brands (L81) | mitigates retailer damages from cartel activities (L42) |
| higher prices for national brands (D49) | increased prices for store brands (L11) |
| cartel activities (L41) | increased prices for store brands (L11) |
| margin effect + demand diversion effect (D43) | overall increase in store brand prices (Q11) |