Energy Shock and Price Adjustment: National Brands vs. Private Labels of Retail Milk Products
2017
Li, Xun | Wang, Rui | Lopez, Rigoberto A.
This paper examines how retailers adjust prices of national brands and private labels when they are exposed to energy shocks. Empirical results from 12 U.S. fluid milk markets provide insights into the magnitude and timing of price adjustment. Asymmetric energy pass-through is validated. The pass-through rate is found to be consistently higher for national brands compared to private labels, indicating that the private labels are more insulated to energy shocks. Further results show that the speed of energy price pass-through is faster for national brands compared to private labels when the energy price increases. However, the speed is similar for the two when the energy price decrease. Overall, this paper shows that when there is a positive energy shock, the retailers adjust prices of national brands first, on average, but they are almost indifferent with the order of adjustment when there is a decrease in energy prices.
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