Estimating Price Rigidity in Vertically Differentiated Food Product Categories with Private Labels

Due to the rapid development of private labels and their segmentation into quality levels, the question arises how they have an effect on price ridigity. There is also much discussion about the impact of private label development on wholesale prices. Based on the roughly availability of appropriate data, questions in regard to the wholesale price are fairly unanswered. This paper fills this research gap by applying two approaches to analyze retail pricing behavior on the basis of weekly scanner data including the wholesale price of a chain distributing in Canada. The results of two case studies indicate higher price rigidities for private labels, especially for premium private labels in the case of salad dressings. Price variability is rather explained by price promotions than changes in the wholesale price. Long-term contracts and stable wholesale prices might be the result of increasing power by retailers due to rising private labels market shares