Assessing price elasticity for private labels and national brands by store locations

This article examines consumers' price sensitivity for private labels and national brands within different socioeconomic environments. A theoretically plausible consumer economics demand system (the almost ideal demand system or AIDS model) is developed to measure price elasticities for seven product categories that are sold in six stores. These stores are in geographic areas that are populated by higher-and lower-income consumers. Results show that national brands have larger price elasticities than private labels. These results are hold not only for stores located in lower-income areas but also for higher-income areas. Implications of effective pricing for both retailers and manufacturers are discussed.