Assessing the competitive interaction between private labels and national brands

In this article, we employ the Linear Approximate Almost Ideal Demand System (LA/AIDS), and specify price reaction equations derived under the LA/AIDS specification. We perform intra-category analyses using data on six individual categories, as well as a pooled analysis on a sample of 125 categories and 59 geographic markets. We find that consumer response to price and promotion decisions (demand) and firm pricing behavior (supply) jointly determine observed market prices and market shares. Further, estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price.