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Multi-category demand and supermarket pricing

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  • Smith, Howard
  • Thomassen, Øyvind

Abstract

When a supermarket cuts its price for one product category it may increase the demand for another by drawing more consumers into the store. We call this a multi-category effect. We contrast the prominent role that the multi-category nature of supermarket shopping has enjoyed in competition policy discussion – and in the theoretical literature on supermarket pricing – with its lack of prominence in the empirical IO literature on pricing incentives for products sold in supermarkets. Using a data set of store-category choices from the UK we document empirical features of supermarket shopping and find that these are consistent with the multi-store multi-category framework of many theoretical models of retail pricing. We report on a project in progress that empirically models consumer demand allowing for multiple demand categories and two store shopping, and describe how the model can be used to measure the empirical importance of multi-category effects in supermarket pricing.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 3 ()
Pages: 309-314

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Handle: RePEc:eee:indorg:v:30:y:2012:i:3:p:309-314

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Bundles; Retailing; Pricing;

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References

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  1. Gould, Eric D & Pashigian, B. Peter & Prendergast, Canice, 2002. "Contracts, Externalities and Incentives in Shopping Malls," CEPR Discussion Papers 3598, C.E.P.R. Discussion Papers.
  2. Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 235-263.
  3. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
  4. Rachel Griffith & Ephraim Leibtag & Andrew Leicester & Aviv Nevo, 2008. "Timing and Quantity of Consumer Purchases and the Consumer Price Index," NBER Working Papers 14433, National Bureau of Economic Research, Inc.
  5. Rey, Patrick & Chen, Zhijun, 2010. "Loss Leading as an Exploitative Practice," IDEI Working Papers 658, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2011.
  6. Ariel Pakes, 2010. "Alternative models for moment inequalities," CeMMAP working papers CWP21/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Dubois, Pierre & Jodar Rosell, Sandra, 2010. "Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model," CEPR Discussion Papers 7847, C.E.P.R. Discussion Papers.
  8. Bonnet, Céline & Dubois, Pierre & Villas Boas, Sofia B., 2009. "Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," TSE Working Papers 09-067, Toulouse School of Economics (TSE).
  9. Villas-Boas, Sofia B., 2006. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0z26d2v9, Department of Agricultural & Resource Economics, UC Berkeley.
  10. Howard Smith & Donald Hay, 2005. "Streets, Malls, and Supermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 29-59, 03.
  11. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
  12. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-55, September.
  13. Rajiv Lal & Ram Rao, 1997. "Supermarket Competition: The Case of Every Day Low Pricing," Marketing Science, INFORMS, vol. 16(1), pages 60-80.
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Cited by:
  1. Heimeshoff, Ulrich & Klein, Gordon J., 2013. "Bargaining power and local heroes," DICE Discussion Papers 87, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.

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