Private labels: psychological versioning of typical consumer products

This paper demonstrates that higher category prices and higher advertising are consistent with markets where low-priced private labels have become more important. In our model, the private label is a version of a national brand without the perceived quality enhancement provided by advertising. The unadvertised private label allows a monopolistic channel to price discriminate between customers who want advertised brands and those who do not. This can lead to either increases or decreases in average category prices. When advertising creative and media costs are high, the model predicts that increased private label availability leads to higher average category prices. (C) 2004 Elsevier B.V. All rights reserved.