A recent article in this Journal by Parker and Connor (PC) concluded that seller concentration in food manufacturing resulted in consumer overcharges equal to $11.5 billion in 1975. The study has limitations that are important in properly interpreting the findings and in designing future research.PC employed three estimating approaches: an adaptation of Scherer's consumer-loss estimates for the entire economy, a price-cost model by Preston and CoUins, and an original Parker-Connor model based upon national brand-private label price differences. This comment focuses on the first and third approaches; the second was not examined.
The National Brand-Private Label Price Difference EstimateThe national brand-private label model, or PC model, assumes that price differences associated with brand types reflect consumer loss caused by market power in food manufacturing. National brand products often are more embellished than private label products of the same product group, however, and consumers probably derive additional intangible value from quality assurances accorded national brands. Price differences cannot be labeled as consumer loss unless real and perceived product differences are of no value to consumers.Selling Areas Marketing, Inc. (SAMI) data for 170 product categories were classified by PC into 53 five-digit SIC categories which
This paper focuses primarily on bargaining relationships between manufacturers of advertised-brand grocery products and supermarket operators (supermarket chains and wholesalers who purchase most of the groceries sold by independent supermarket operators). This is part of the ongoing process of incorporating firm and industry behavior into foodmarketing system analyses. Developing a dynamic theory which predicts evolving structure and performance of industries and subsectors would not only benefit industry analysts but also allow academic and government researchers to plan and communicate better their research results. Data needed for statistical analyses of the effects of dynamic vertical linkages on industry structure are not available. Therefore, this analysis draws primarily from an extensive study of food distributor procurement practices which merged trade literature data and scores of confidential interviews with grocery buyers and sellers (Harnrn 1981). The validity of the conclusions drawn by this or any analytical descriptive research rests upon the accuracy of the empirical observations and the logic used in the analysis. The value of such research is in its potential contribution to the formulation of testable new theoretical constructs as well as in its empirical findings.
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