Price and Brand Competition between Di¤erentiated Retailers: A Structural Econometric Model

We develop a structural model of demand and supply in the competition between re-tailer chains. In the model, supermarkets compete in price and brand o¤er to attract consumers, in particular through the share of private labels versus national brands across all their products. Private labels can serve as a di¤erentiation tool for the retailers in order to soften price competition. They may a¤ect the marginal costs of all products for the re-tailer because of eventual quality di¤erences and also by helping retailers to obtain better conditions from their manufacturers. Di¤erentiation is taken into account by estimating a discrete-continuous choice model of demand where outlet choice and total expenditures are determined endogenously, using simulated maximum likelihood. On the supply side, we consider a simultaneous location-and-price competition game between retailers and use its rst-order conditions together with the demand parameters to derive marginal costs es-timates and elasticities. Finally, our structural estimation of the model allows to perform simulation of the e¤ect of some demand shocks like for example an increase in transportation costs for consumers on the equilibrium behavior of retailer chains