In 2019, private label products generated an estimated $180 billion in U.S. retail sales. Private labels are generally the cheapest option available, which is particularly appealing to price-sensitive shoppers seeking a lower-priced alternative to major national brands. In recent years, several proposed and consummated mergers between private label manufacturers have raised questions about the proper antitrust evaluation of such mergers. In December 2019, for instance, the Federal Trade Commission filed a complaint challenging the acquisition of TreeHouse Foods’ private label ready-to-eat cereal business by Post Holdings, claiming that the acquisition would “eliminate the vigorous competition between them to serve grocers across the country.”
The antitrust analysis of private label mergers is complicated by the distinct, yet interrelated, stages at which private label products compete to make sales. First, private label manufacturers compete to become a retailer’s private label product supplier (e.g., via an RFP process). Second, the private label product chosen by the retailer competes against other items on the retail shelf, in particular, against branded products that private labels often seek to emulate. When negotiating wholesale prices with retailers, private label manufacturers must consider both stages of competition: A higher wholesale price may lead the retailer to choose a different private label supplier in the first stage. Because wholesale prices are an input cost to retailers—and therefore generally affect retail prices—a higher wholesale price may also lead to a higher retail price and thus fewer private label sales in the second stage. The constraint imposed on private label wholesale prices by this second stage of competition—the need for the private label product to be priced competitively on the retail shelf—is not directly affected by a merger between private label manufacturers. Therefore, the antitrust evaluation of such mergers must assess the relative importance of the competitive constraints imposed by both (1) upstream competition between private label manufacturers to become a retailer’s private label supplier, and (2) downstream competition on the retail shelf.