Income and Wealth Effects on Private-Label Demand: Evidence From the Great Recession

Jean-Pierre Dubé, Günter J. Hitsch, Peter E. Rossi

NBER Working Paper No. 21446
Issued in August 2015
NBER Program(s):Economic Fluctuations and Growth, Industrial Organization

We measure the causal effects of income and wealth on the demand for private-label products. Prior research suggests that these effects are large and, in particular, that private-label demand rises during recessions. Our empirical analysis is based on a comprehensive household-level transactions database matched with price information from store-level scanner data and wealth data based on local house value indices. The Great Recession provides a key source of the variation in our data, with a large and geographically diverse impact on household incomes over time. We estimate income and wealth effects using “within” variation of income and wealth at the household level. Our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization. We establish a precisely measured negative effect of income on private-label shares. The effect of wealth is negative but not precisely measured. However, the estimated effect sizes are small, in contrast with prior academic work and industry views. An examination of the possible supply-side response to the recession shows only small changes in the relative price of national-brand and private-label products. Our estimates also reveal a large positive trend in private-label shares that predates the Great Recession. We examine some possible factors underlying this trend, but find no evidence that this trend is systematically related to specific private-label quality tiers or to the overall rate of private-label versus national-brand product introductions.

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Document Object Identifier (DOI): 10.3386/w21446

Published: Jean-Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2018. "Income and Wealth Effects on Private-Label Demand: Evidence from the Great Recession," Marketing Science, vol 37(1), pages 22-53.

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