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Multi-category demand and supermarket pricing

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Author Info

  • 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. Zhijun Chen & Patrick Rey, 2010. "Loss Leading as an Exploitative Practice," Working Papers hal-00540724, HAL.
  2. Bonnet, Celine & Dubois, Pierre & Villas-Boas, Sofia B., 2009. "Empirical evidence on the role of non linear wholesale pricing and vertical restraints on cost pass-through," CUDARE Working Paper Series 1089, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  3. Dubois, Pierre & Jodar-Rosell, Sandra, 2010. "Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model," IDEI Working Papers 604, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Eric D. Gould & B. Peter Pashigian & Canice J. Prendergast, 2005. "Contracts, Externalities, and Incentives in Shopping Malls," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 411-422, August.
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  6. Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  7. Howard Smith & Donald Hay, 2005. "Streets, Malls, and Supermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 29-59, 03.
  8. Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 235-263.
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  10. 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.
  11. 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.
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Citations

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Cited by:
  1. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
  2. 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).

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