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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kadiyali, Vrinda & Vilcassim, Naufel & Chintagunta, Pradeep, 1998. "Product line extensions and competitive market interactions: An empirical analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 89(1-2), pages 339-363, November.
- de Palma, Andre & Lindsey, Robin & von Hohenbalken, Balder & West, Douglas S., 1994. "Spatial price and variety competition in an urban retail market : A nested logit analysis," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 12(3), pages 331-357, September.
- repec:cdl:compol:217 is not listed on IDEAS
- Roger H. von Haefen & Daniel J. Phaneuf, 2003. "A Note on Estimating Nested Constant Elasticity of Substitution Preferences for Outdoor Recreation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 85(2), pages 406-413.
- Cotterill, Ronald W. & Dhar, Tirtha Pratim, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Research Reports, University of Connecticut, Food Marketing Policy Center 25189, University of Connecticut, Food Marketing Policy Center.
- Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
- Simon P. Anderston & Andre de Palma, 1991.
"Multiproduct Firms: A Nested Logit Approach,"
Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science
973, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Chintagunta, Pradeep K & Jain, Dipak C, 1995. "Empirical Analysis of a Dynamic Duopoly Model of Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 109-31, Spring.
- James Brander & Jonathan Eaton, 1982.
"Product Line Rivalry,"
Working Papers, Queen's University, Department of Economics
519, Queen's University, Department of Economics.
- Kadiyali, Vrinda & Vilcassim, Naufel J & Chintagunta, Pradeep K, 1996. "Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?," The Journal of Business, University of Chicago Press, vol. 69(4), pages 459-87, October.
- Pradeep K. Chintagunta, 1998. "Inertia and Variety Seeking in a Model of Brand-Purchase Timing," Marketing Science, INFORMS, INFORMS, vol. 17(3), pages 253-270.
- Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-76, Fall.
- J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, INFORMS, vol. 23(1), pages 134-145, December.
- J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, INFORMS, vol. 45(10), pages 1324-1338, October.
- Michaela Draganska & Dipak C. Jain, 2005. "Product-Line Length as a Competitive Tool," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 1-28, 03.
- Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-86, August.
- Pradeep K. Chintagunta, 1993. "Investigating Purchase Incidence, Brand Choice and Purchase Quantity Decisions of Households," Marketing Science, INFORMS, INFORMS, vol. 12(2), pages 184-208.
- Naufel J. Vilcassim & Vrinda Kadiyali & Pradeep K. Chintagunta, 1999. "Investigating Dynamic Multifirm Market Interactions in Price and Advertising," Management Science, INFORMS, INFORMS, vol. 45(4), pages 499-518, April.
- Raubitschek, Ruth S, 1987. "A Model of Product Proliferation with Multiproduct Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 269-79, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.