Working Paper: CEPR ID: DP16950
Authors: Roman Inderst; Marco JW Kotschedoff; Raphael Kuhlmann
Abstract: As store brands (or private labels) are not only common in many product categories but are often procured competitively from different sources or even through vertical integration, they may be not or much less directly affected by a cartel induced overcharge. 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. While retailers should pass on at least some of the overcharge for national brands, resulting in a price increase for national brands, theoretically their optimal response with respect to store brands is ambiguous, as there are two potentially opposing effect, a “demand diversion effect” and a “margin effect”. Consumers could thus face either lower or higher store brand prices when there is a cartel of brand manufacturers. In any case, however, the optimal reaction of retailers allows them to mitigate the immediate damage inflicted by the overcharge on national brands, which raises the question to what extent such mitigation should be accounted for in follow-on cases. In the second part of the paper we illustrate our arguments with an empirical analysis of 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 wholesale prices for national brands (D49) | Retailers adjust store brand prices (L11) |
| Higher wholesale prices for national brands (D49) | Higher store brand prices (D49) |
| Higher wholesale prices for national brands (D49) | Lower store brand prices (D49) |
| Presence of store brands (L81) | Mitigates damage from cartel overcharges (L12) |
| Retailers adjust store brand prices (L11) | Maintain competitiveness and profit from increased store brand sales (L21) |
| Cartel behavior (L12) | Retail prices for national brands increase (L11) |
| Cartel behavior (L12) | Store brand prices increase (D49) |