DP16948 Damage Calculation and Mitigation in Retailing in the Presence of Store Brands (With an Application to the German Coffee Cartel)
Store brands are a frequent phenomenon in today’s retailing landscape. When wholesale prices for national brands are affected by a cartel, retailers’ may still be able to procure store brands competitively, either as they are procured from different sources and under different formats or as retailers are vertically integrated. While this suggests to ignore store brands when calculating retailer (or even consumer) damages, we show that, at least from an economist’s perspective, this is wrong. The first part of this article provides the economic foundations for how we should expect retailers to optimally adjust their store brand prices when facing higher wholesale prices on national brands. We identify two opposing effects, a “demand diversion effect” and a “margin effect”, which could, in principle, lead to both higher or lower store brand prices when there is a cartel of brand manufacturers. While the integration of store brands into damage calculation is thus a priori ambiguous from a consumers’ perspective, we show that the presence of store brand unambiguously mitigates retailers’ damages. We provide calculations for the German coffee cartel.