Competitive and welfare effects of private label presence in differentiated food markets

Private labels (PLs), originally introduced by food retailers as low-priced alternatives to national brands, have expanded in recent years in premium market segments. This article examines how the presence of different types of PLs affect prices, competition, and overall welfare. Using estimates from a random coefficients logit demand model and retail scanner data of yoghurt sales from 17 regions in Italy, we simulate counterfactual scenarios where different types of PLs - namely 1) horizontally differentiated; 2) vertically differentiated; and 3) both types - are no longer in the market. The empirical results show that PLs are social-welfare enhancing, playing a pro-competitive role that benefits consumers. Also, in both a relative and an absolute sense, the welfare-increasing effect of PLs presence is more significant for horizontally differentiated PLs than for vertically differentiated ones.