Asymmetric price competition and store vs national brand choice

Abstract

Sales and market share of store brands have been growing significantly at the expense of national brands. The decision to purchase a store brand or a national brand has been modeled in this paper. The proposed model provides an explanation for the existence of asymmetric price competition between store brands and national brands. The article proposes and empirically demonstrates the existence of a reference threshold as the key criterion underlying this choice. It also shows that the decision to buy the store/national brand is not influenced by the store brand’s price or price promotions, or the magnitude of the difference between the threshold and the national brand’s price.