In many stores, nationally advertised brands share the shelves with store brands. For example, you can buy Kellogg s Frosted Flakes or Safeway s Frosted Flakes. Similarly, Bayer Aspirin shares a shelf with Safeway Aspirin. The introduction of a store brand is a form of market entry a new competitor for a national brand and usually decreases the price of the national brand.
The classic example of the price effects of store brands occurred in the market for light bulbs. In the early 1980s, the price of a four-pack of General Electric bulbs was about $3.50. The introduction of store brands at a price of $1.50 caused General Electric to cut its price to $2.00. In markets without store brands, the General Electric price remained at $3.50. Similarly, in the market for disposable diapers, increased competition from store brands caused Procter & Gamble to cut its prices by 16 percent. For a wide variety of products laundry detergent, ready-to-eat breakfast cereals, motor oil, and aluminum foil the entry of store brands decreased the price of national brands.