Working paper

Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model

Pierre Dubois, and Sandra Jodar-Rosell


We develop a model of competition between retailer chains with a structural estimation of the demand and supply in the supermarket industry in France. In the model, supermarkets compete in price and brand offer over all food products to attract consumers, in particular through the share of private labels versus national brands across all their products. Private labels can serve as a differentiation tool for the retailers in order to soften price competition. They may affect the marginal costs of all products for the retailer because of eventual quality differences and also by helping retailers to obtain better conditions from their manufacturers. Differentiation is taken into account by estimating a discrete-continuous choice model of demand where outlet choice and total expenditures are determined endogenously. On the supply side, we consider a simultaneous competition game in brand offer and price between retailers to identify marginal costs. After estimation by simulated maximum likelihood, the structural estimates allow to simulate the effect on the equilibrium behavior of retailer chains of a demand shock through an increase in transportation costs for consumers and a merger between two retailer chains.

JEL codes

  • L13: Oligopoly and Other Imperfect Markets
  • L22: Firm Organization and Market Structure
  • L81: Retail and Wholesale Trade • e-Commerce

See also

Published in

TSE Working Paper, n. 10-159, April 2010