Price and Product-Line Rivalry Among Supermarket Retailers
AbstractProduct-line length, or variety, is a key competitive tool used by retailers to differentiate themselves from rivals. Theoretical models of price and variety competition suggest that both store and product heterogeneity are key determinants of price and variety strategies, but none test this hypothesis in a rigorous way. This study provides the first empirical evidence on supermarket retailers' combined price and variety strategies using a nested CES modeling framework. Unlike other discrete-choice models of product differentiation, the NCES model is sufficiently general to admit both corner and interior solutions in both store and product choice. The model is estimated using store-level scanner data for all grocery chains in a major West Coast market and finds that retailers do indeed use both price and product-line strategies to compete for market share, but tend to follow moderately cooperative pricing strategies and price and more cooperative strategies in variety.
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Bibliographic InfoPaper provided by Arizona State University, Morrison School of Agribusiness and Resource Management in its series Working Papers with number 28535.
Date of creation: 2004
Date of revision:
game theory; nested CES; price competition; retailing; variety.; Demand and Price Analysis;
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