Market Power and the Demsetz Quality Critique: An Evaluation for Food Retailing
AbstractThis study analyzes supermarket firm prices to determine whether prices are related to market structure and whether the Demsetz quality critique is valid. Factor analysis is used to identify five service factors that are modeled with price as endogenous variables in a simultaneous equations framework to test whether a more concentrated market structure is related to higher service levels which, in turn, are related to higher prices (the Demsetz hypothesis) and whether a more concentrated market structure is directly related to higher price (market power hypothesis). For this study of supermarkets in 34 local markets in six southwestern states, market share and concentration are not significantly related to any service factors. Concentration has a significant positive relationship with price in the full sample, and share also is significantly related to price in subsamples of large, leading firms. Thus, the Demsetz critique is rejected. Other factors that affect price include store format, whether a firm competes against warehouse supermarkets, store cost, and market demand factors.
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Bibliographic InfoPaper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25185.
Date of creation: 1994
Date of revision:
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Demand and Price Analysis; Industrial Organization;
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- Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
- Nelson, Philip & Siegfried, John J & Howell, John, 1992. "A Simultaneous Equations Model of Coffee Brand Pricing and Advertising," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 54-63, February.
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