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Supermarket Choice and Supermarket Competition in Market Equilibrium

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  • Howard Smith
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    Abstract

    Multi-store firms are common in the retailing industry. Theory suggests that cross-elasticities between stores of the same firm enhance market power. To evaluate the importance of this effect in the U.K. supermarket industry, we estimate a model of consumer choice and expenditure using three data sources: profit margins for each chain, a survey of consumer choices and a data-set of store characteristics. To permit plausible substitution patterns, the utility model interacts consumer and store characteristics. We measure market power by calculating the effect of merger and demerger on Nash equilibrium prices. Demerger reduces the prices of the largest firms by between 2 and 3.8% depending on local concentration; mergers between the largest firms lead to price increases up to 7.4%. Copyright 2004, Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/0034-6527.00283
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 71 (2004)
    Issue (Month): 1 ()
    Pages: 235-263

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    Handle: RePEc:oup:restud:v:71:y:2004:i:1:p:235-263

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    Cited by:
    1. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia B. Villas-Boas, 2013. "The Impact of Retail Mergers on Food Prices : Evidence from France," Working Papers 2013-18, Centre de Recherche en Economie et Statistique.
    2. Minten, Bart, 2007. "The food retail revolution in poor countries: Is it coming or is it over? Evidence from Madagascar," IFPRI discussion papers 719, International Food Policy Research Institute (IFPRI).
    3. Eckel, Carsten, 2009. "International trade and retailing," BERG Working Paper Series 63, Bamberg University, Bamberg Economic Research Group.
    4. Bonanno, Alessandro & Lopez, Rigoberto, 2007. "Competition Effects of Supermarket Services," Research Reports 149176, University of Connecticut, Food Marketing Policy Center.
    5. Mitsuru Sunada, 2012. "Competition among movie theaters: an empirical investigation of the Toho–Subaru antitrust case," Journal of Cultural Economics, Springer, vol. 36(3), pages 179-206, August.
    6. Matthijs R. Wildenbeest, 2011. "An empirical model of search with vertically differentiated products," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 729-757, December.
    7. Darlene Chisholm & George Norman, 2012. "Spatial competition and market share: an application to motion pictures," Journal of Cultural Economics, Springer, vol. 36(3), pages 207-225, August.
    8. Smith, Howard & Thomassen, Øyvind, 2012. "Multi-category demand and supermarket pricing," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 309-314.
    9. Griffith, Rachel & Nesheim, Lars, 2008. "Household Willingness to Pay for Organic Products," CEPR Discussion Papers 6905, C.E.P.R. Discussion Papers.
    10. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    11. Richard Volpe, 2013. "Promotional Competition Between Supermarket Chains," Review of Industrial Organization, Springer, vol. 42(1), pages 45-61, February.
    12. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The impact of retail mergers on food prices: evidence from France," Working Papers 181943, Institut National de la Recherche Agronomique, France.
    13. A. Orhun, 2013. "Spatial differentiation in the supermarket industry: The role of common information," Quantitative Marketing and Economics, Springer, vol. 11(1), pages 3-37, March.
    14. Eckel, Carsten, 2007. "International trade and retailing: Diversity versus accessibility and the creation of retail deserts," Center for European, Governance and Economic Development Research Discussion Papers 66, University of Goettingen, Department of Economics.
    15. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
    16. repec:got:cegedp:66 is not listed on IDEAS

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