Do consumers benefit from national-brand listings by hard discounters?

Abstract

Hard discounters are moving away from an almost exclusive private-label (PL) focus by adding a select set of big-name brands to their otherwise scanty assortments. However, to what extent consumers benefit from this strategy remains unclear. This study quantifies the consumer-welfare impact of adding a select set of leading national brands to hard discounter Lidl’s assortment in the German market. We rely on the economic concept of compensating variation, which reflects the consumer-welfare effect in monetary terms and captures the impact on consumer prices while accounting for consumers’ possible appreciation of more convenient access to big-name brands. Although hard discounters argue that adding big-name brands to their assortment benefits consumers, our results reveal unfavorable price developments, not just at the hard discounter but in the entire market. Importantly, impoverished consumers are hurt more severely, with a monetary loss due to the price increase across the 18 categories in our sample that is about five times larger than for the more affluent.