Price Transmission During Promotions: A Case Study of Spanish Milk Brands

ABSTRACT Price promotion is the marketing tool typically used by retail brands to boost sales and gain market share. In this paper, we intend to investigate the price transmission mechanism among competitive brands in Spain when price reductions that are associated with price promotions take place. The study is focused on intra‐retailer competition in two retailers with different business models. The methodological framework is based on the estimation of a two‐regime threshold vector autoregressive model (TVAR) of price levels in which the Private Label price has been considered as the threshold variable. The results suggest that the price responses of manufacturer brands to private label price reductions are much larger than the inverse responses. The price of the private label reacts only weakly to price reductions in manufacturer brands. These responses decrease in strength as the market share of the Private Label increases within the retailer.