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http://ssrn.com/abstract=279713
 
 

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What Can the Price Gap between Branded and Private Label Products Tell Us About Markups?


Robert Barsky


Research Department, Federal Reserve Bank of Chicago; University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Mark E. Bergen


University of Minnesota - Carlson School of Management

Shantanu Dutta


University of Southern California - Marshall School of Business

Daniel Levy


Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

August 2001

NBER Working Paper No. w8426

Abstract:     
In this paper we investigate the size of markups for nationally branded products sold in the U.S. retail grocery industry. Using scanner data from a large Midwestern supermarket chain, we compute several measures of upper and lower bounds on markup ratios for over 230 nationally branded products in 19 categories. Our method is based on the insight that retail and wholesale prices of private label products provide information on marginal costs that are also applicable to the appropriately matched nationally branded products. Under reasonable assumptions - the accuracy of which we consider in some detail - the wholesale price of a private label product is an upper bound for the marginal manufacturing cost of its nationally branded equivalent, while the retailer's margin on the national brand is an upper bound on the retailer's marginal handling cost for both the brand and private label versions. We find that lower bounds on the 'full' markup ratio range from 3.44 for toothbrushes and 2.23 for soft drinks to about 1.15-1.20 for canned tuna and frozen entrees, with the majority of categories falling in the range 1.40-2.10. Lower bounds on manufacturers' markups are even higher. Thus the data indicate that markups on nationally branded products sold in U.S. supermarkets are large.

Number of Pages in PDF File: 73

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Date posted: August 14, 2001  

Suggested Citation

Barsky, Robert and Bergen, Mark E. and Dutta, Shantanu and Levy, Daniel, What Can the Price Gap between Branded and Private Label Products Tell Us About Markups? (August 2001). NBER Working Paper No. w8426. Available at SSRN: http://ssrn.com/abstract=279713

Contact Information

Robert B. Barsky (Contact Author)
Research Department, Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604
United States
University of Michigan at Ann Arbor - Department of Economics ( email )
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-9476 (Phone)
734-764-2769 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mark E. Bergen
University of Minnesota - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)
Shantanu Dutta
University of Southern California - Marshall School of Business ( email )
Hoffman Hall 701
Los Angeles, CA 90089-1427
United States
213-740-5038 (Phone)
213-740-7828 (Fax)
Daniel Levy
Bar-Ilan University - Department of Economics ( email )
Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)
HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )
1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States
HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html
Rimini Center for Economic Analysis ( email )
Via Patara, 3
Rimini (RN), RN 47900
Italy
HOME PAGE: http://www.rcfea.org/
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