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Impact of Private Label Brands of Milk on Competition in Fluid Milk Markets

Department of Agricultural Economics, University of Kentucky, Lexington 40506

ABSTRACT

The objective was to determine the impact of private label brands of milk on the competitive behavior of fluid milk processors. This involved an analysis of the effects on pricing policies, product policies, and policies regarding competitive practices in the marketplace. The analysis was primarily on data obtained through personal interviews with managers of 31 to the 35 fluid milk processors in Kentucky.

Processors were packaging private label brands to ramin competitive in the market, reduce costs, retain accounts, and hold display space for processor brands in retail outlets. Firms not packaging private label brands were doing so because of inadequate capacity and the desire to build and retain consumer loyalty to their own brands.

The most noticeable impact of private label brands has been on pricing and product policies. A shift in the location of bargaining power from processors to retailers results in lower wholesale prices for private label brands even though product quality is essentially identical to the processor brands.

Finally, the study provides evidence to suggest that private label brands of milk are becoming increasingly important as a means of direct price competition in contrast to the traditional role of brands in nonprice competition.