[arrosenberg]

No, the comment you are applying to is 100% correct. Store brands are a form of price discrimination, which is anti-competitive and illegal. Courts and regulators significantly weakened enforcement in the 80s, but the laws haven't changed.

[gamblor956]

No, the comment I am replying to is 100% wrong.

Store brands are a form of price discrimination, which is anti-competitive and illegal. Courts and regulators significantly weakened enforcement in the 80s, but the laws haven't changed.

Price discrimination (known as price segmentation in the business world) is perfectly legal, as long as it is between products and not between customers (and even there it might still be as long as the discrimination isn't based on a protected class). Price segmentation of products has always been legal in the US.

Store brands have been a thing for centuries. Most stores used to just sell the house brand.

Indeed, the concept of selling a "third party" brand in a store is a relatively recent development that can largely be traced to farm supply stores and the rise of department stores...which, notably sold their own store brands alongside those of other companies for decades without antitrust issues. (In fact, Sears' antitrust issues related to their use of market power to obtain discounts or to fix prices in certain geographic markets. They never had issues with selling store brands).

[arrosenberg]

If we were in 1930 and discussing a bunch of independent locals, I would agree with you. In this case, we are talking about vertically aligned retail giants producing store brands as a form of further vertical alignment.

Amazon/Walmart/Target know how much of a given product sells off their shelves. They use that data in order to develop store brands in order to further monopolize profits from their position as a distributor. This behavior is clearly anti-competitive, as numerous complaints from merchants on Amazon marketplace or from vendors who have to deal with Walmart's predatory purchasing teams can attest to. It is effectively a monopsony or oligopsony.

[gamblor956]

If we were in 1930 and discussing a bunch of independent locals, I would agree with you. In this case, we are talking about vertically aligned retail giants producing store brands as a form of further vertical alignment.

If you want to talk about vertically aligned retail giants producing store brands, it would be very helpful for you to understand that retailers like Walmart and Target are not vertically aligned and do not produce their own store brands. They buy them as white label products from other companies, most of whom make the name-brand products that appear in their stores alongside the store brands.

Tesla would be an example of a vertically aligned company, as would Apple to a lesser extent.

Amazon does not operate like Walmart or Target, so none of what I am saying applies to Amazon. I agree with you that Amazon is violating antitrust with its policies. There are fundamental differences in how Amazon's marketplace works compared to how retail sales work that drive that analysis.

They use that data in order to develop store brands in order to further monopolize profits from their position as a distributor.

The second half of that statement is false ("in order to..."), and demonstrates a fundamental misunderstanding of how the retail market works. Product manufacturers derive their profits from selling to retailers not to end customers. They sell their goods at "wholesale prices" that are far below what the end customers pay. The wholesale prices for store brand products are generally the same or close to the same as the price of name-brand products.

Once on the shelves, the products compete on the basis of marketing. Manufacturers do this by advertising, like on TV. Stores do this by discounting their products or placing them in a better position on the shelf.

And you know what? Advertising simply works better. People prefer the name brand even though the store brand of comparable quality (and often the same underlying product) is right there next to it. There are hundreds of studies on this, and literally trillions of dollars of consumer spending supporting this.

Also, in many cases the stores work with the product makers and provide them data about in-store sales statistics to help them determine marketing spend (including advertising, product design, package design, etc.), because they care more about getting people into the store to buy any product than they do about making a tiny bit more from selling a store brand item instead of Name Brand Product X.

[arrosenberg]

> If you want to talk about vertically aligned retail giants producing store brands, it would be very helpful for you to understand that retailers like Walmart and Target are not vertically aligned and do not produce their own store brands. They buy them as white label products from other companies, most of whom make the name-brand products that appear in their stores alongside the store brands.

This is a distinction without a difference. The mere fact that they don't own the factory producing the goods doesn't change the fact that they are acting as both producer and distributor in the same marketplace. If Costco buys bottled water from Nestle they are only a distributor, and there is no conflict of interest. When they put Kirkland Signature water on the shelf next to it, there is a pretty clear conflict of interest that allows Costco to leverage it's power as a distributor into pricing power against producers. Additionally, there is only a single buyer for the product line, regardless of whether the producer is legally independent. This is a vertically aligned operation - if Costco stopped selling Kirkland Signature tomorrow, it would cease to exist. The fact that they are buying the store brand products from the same producers who make the name brand product makes the entire operation look more aligned and concentrated, not less.

> The second half of that statement is false ("in order to..."), and demonstrates a fundamental misunderstanding of how the retail market works. Product manufacturers derive their profits from selling to retailers not to end customers. They sell their goods at "wholesale prices" that are far below what the end customers pay. The wholesale prices for store brand products are generally the same or close to the same as the price of name-brand products.

Don't be patronizing. The entire dynamic as it exists gives chain stores negotiating leverage against those name-brand products, allowing them to get better prices on goods than a smaller, independent operator would be able to get. That is price discrimination, and it's why small businesses in the US are getting killed and big, consolidated corporations keep getting larger.

[gamblor956]

This is a distinction without a difference. The mere fact that they don't own the factory producing the goods doesn't change the fact that they are acting as both producer and distributor in the same marketplace.

This is a huge distinction. They don't simply not own the factory, they don't produce the goods under any legal definition of the term. Nor are they a distributor under the legal definition of the term; they are a retailer which has specific and different legal meaning. (A distributor sells products or other parties that sell to end-customers. The manufacturer is usually the distributor of its own products.)

If Costco buys bottled water from Nestle they are only a distributor, and there is no conflict of interest. When they put Kirkland Signature water on the shelf next to it, there is a pretty clear conflict of interest that allows Costco to leverage it's power as a distributor into pricing power against producers.

No, it doesn't. Costco pays Nestle or one of Nestle's competitors for Kirkland Signature water. Absolutely none of the Kirkland Signature products are made by Costco itself other than the assembly of food in the food court.

Additionally, there is only a single buyer for the product line, regardless of whether the producer is legally independent. This is a vertically aligned operation - if Costco stopped selling Kirkland Signature tomorrow, it would cease to exist.

Note: by vertically aligned you actually mean "vertically integrated" (and I should have edited my earlier comment to correct the terminology). A vertically integrated company must own at least two of the following levels: the suppliers, distributors, or retailers of its products. (If it is a retail company, that would mean it needs to own one of the other levels of companies to be vertically integrated.)

The fact that they are buying the store brand products from the same producers who make the name brand product makes the entire operation look more aligned and concentrated, not less.

No, it's exactly backwards. The manufacturers don't just sell to Costco. They sell to other retailers as well. Vita Coco, for example, sells white-label coconut water to both Costco and Kroger (i.e., Ralphs), among other retailers. (Vita Cocoa used to be a client of mine.)

The entire dynamic as it exists gives chain stores negotiating leverage against those name-brand products, allowing them to get better prices on goods than a smaller, independent operator would be able to get.

Yes, that is how market power works. A participant with greater market power can use that as leverage to negotiate pricing. This is an acceptable use of market power; for example, it is the basis behind insurance pools, coops, group discounts, etc.

It would not be acceptable if the big retail chain used its market power to effect how a supplier deals with other parties or in other markets, such as by attempting to restrict a supplier from selling to competitors. (But note: exclusives are fine, so long as the exclusive product is not a condition of, or conditioned upon, restrictions on the sale of non-exclusive products, because a manufacturer can simply refuse exclusivity and offer it to competitors exclusively or non-exclusively or can negotiate the terms of the exclusive product with the retailer before them. See, for example, Orgain's nut-based protein powder, or the myriad models of TVs that are "exclusive" to each retailer.)

[arrosenberg]

However you want to define it, store brands in the current environment are being used to play pricing games. Perhaps it makes more sense to say that retailers are a participant and beneficiary of the bad behavior of whoever is selling the water to both Costco and Nestle.

In either case, it gives companies like Costco/Walmart/Target the ability to gain greater market share in ways that aren't accessible to small businesses. If you don't mind economic concentration, I can see why this wouldn't seem like an issue to you. I believe that America functions best when wealth and economic activity are geographically well distributed, and when individuals have greater control over their own ability to be productive. That means diminishing chain retailers and giving more agency to individual retailers. Pricing games are the number one way that retail chains are able to drive small, local retailers out of business — they've been doing it with varying levels of success for over 100 years.

> Yes, that is how market power works. A participant with greater market power can use that as leverage to negotiate pricing. This is an acceptable use of market power; for example, it is the basis behind insurance pools, coops, group discounts, etc.

That's not an acceptable use of market power. It specifically disadvantages small businesses that do not have access to private label brands. It's a competitive advantage exclusive to chain stores that allows them to engage in discriminatory pricing games. Employer healthcare also creates an anti-competitive advantage for larger companies for the same reason, but that's a separate issue.