National brands in hard discounters: market expansion and bargaining power effects

Abstract

In this paper, we analyse the strategic role of the recent introduction of national brand (NB) products by hard discounters (HDs) in the French food retailing market and its impact both at the retail and manufacturer levels. We use a structural econometric model of vertical relationships and consider the competition between mainstream retailers (MSRs) and HDs, and between NBs and private labels (PLs). We apply this model to the French dairy dessert market, which is characterised by a high penetration of PLs and a high concentration at the manufacturer and retail levels. Using a counterfactual analysis, we show that the introduction of NBs by HDs clearly increases hard discounters’ profits. Consumers benefit from this strategy. Moreover, we find an increase in the profit of manufacturers of NBs but at the expense of MSRs. We also show that the introduction of NBs by HDs does not only act as a means to attract different consumer groups and extend their market share through a variety effect. It also serves to improve their bargaining position with respect to their PL providers.

JEL codes

Reference

Céline Bonnet, Zohra Bouamra-Mechemache, and Gordon Klein, “National brands in hard discounters: market expansion and bargaining power effects”, European Review of Agricultural Economics, vol. 49, n. 5, December 2022, p. 1113–1145.