How Much Do Consumers Benefit from New Brand Introductions? The Case of Potato Chips

Abstract

This study identifies consumer welfare from new brand introductions in the potato chip market. Price and variety effects of new brand introduction are measured by estimating a demand system underlying an expenditure function. Variety effects are positive in most cities, while price effects are generally negative when consumers exhibit some variety preference. Variety effects dominate price effects in most cities; an opposite effect observed in some cities may indicate high entry barriers or joint brand- and price-based marketing strategies. Results indicate that consumers and producers gain from product innovations, but substantial regional variation exists in the distributional effects of new brand introduction.city-demand system, compensating variation, consumer welfare, new brands, virtual prices, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety,