The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart

We provide new evidence on retailers' pricing and advertising of store brands in the U.K. grocery markets. We analyse a simple Hotelling model in which retailers and manufacturers endogenously advertise their respective brands; we account for the impact of advertising on retailer-manufacturer bargaining and downstream competition. The model predicts that retailers advertise their store brands less when advertising is more rivalrous. We present empirical evidence consistent with this prediction. According to our model, aggregate consumer surplus can be higher with store brands than when they are absent from the market.

Section: Introductionmentioning

confidence: 77%

Why Do Retailers Advertise Store Brands Differently Across Product Categories?

Griffith

Smith

Król

2018

“…[2003] and Tang et al . [2010] for on‐line purchases via shopbots, Milyo and Waldfogel [1999] on liquor, Orlov [2011] on airlines, and many others. For the retail gasoline industry, Barron et al .…”

Section: Literature and Backgroundmentioning

confidence: 99%

Gasoline Price Dispersion and Consumer Search: Evidence from a Natural Experiment

Noel

2018

The vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion. This article does the reverseit examines how a shock to price dispersion impacts consumer search. A direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades-old retail gasoline price cycles, and the nonlinear high-frequency price dispersion pattern generated by them, to stop. Identifying effects from this shock, the results show a substantial response of consumer search to changes in price dispersion. †

“…Another form of government intervention is the imposition of environmental regulations, and studies such as Brown, Hastings, Mansur and Villas‐Boas [], Ryan [] and Busse and Keohane [2007] have looked at the effect of gasoline content regulation and of the Clean Air Act on market structure. There are also studies evaluating the impact of advertising restrictions on competition and prices in various industries (Milyo and Waldfogel []) study the effect of a ban on price advertising, while Clark [] looks at the effect of a ban on advertising directed at children on competition in the cereal market and Tan [] considers advertising restrictions in cigarette markets). Theoretical work by Armstrong, Vickers and Zhou [] points out that in markets with costly information acquisition, regulations designed to protect consumers, such as price caps or measures which enable consumers to refuse to receive advertising, could have the unintended consequence of reducing consumers' incentives to become informed, resulting in softened price competition.…”

Section: Introductionmentioning

confidence: 99%

Price Controls and Market Structure: Evidence from Gasoline Retail Markets

Carranza

Clark

Houde

2015

In this paper we study the effect of price floor regulations on the organization and performance of markets. The standard interpretation of the effects of these policies is concerned with short-run market distortions associated with excess supply. Since price controls prevent markets from clearing, they lead to higher prices. While this analysis may be correct in the short-run, it does not consider the dynamic equilibrium consequences of price controls. We demonstrate that price floor regulations can have important long-run effects on the the structure of markets by crowding them and creating endogenous barriers to entry for low-cost retailers. Moreover, we show that these factors can indirectly lower productivity and possibly even prices. We test this in the context of an actual regulation imposed in the retail gasoline market in the Canadian province of Québec and show that the policy led to more competition between smaller/less efficient stations. This resulted in lowered sales, and, despite the reduction in efficiency, did not increase prices.