IDEAS home Printed from https://ideas.repec.org/p/ags/uconnr/25185.html
   My bibliography  Save this paper

Market Power and the Demsetz Quality Critique: An Evaluation for Food Retailing

Author

Listed:
  • Cotterill, Ronald W.
  • Harper, C. David

Abstract

This 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.

Suggested Citation

  • Cotterill, Ronald W. & Harper, C. David, 1994. "Market Power and the Demsetz Quality Critique: An Evaluation for Food Retailing," Research Reports 25185, University of Connecticut, Food Marketing Policy Center.
    • Handle: RePEc:ags:uconnr:25185
    DOI: 10.22004/ag.econ.25185
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/25185/files/rr940029.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.25185?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew W. Franklin & Ronald W. Cotterill, 1993. "An Analysis of Local Market Concentration Levels and Trends in the U.S. Grocery Retailing Industry," Food Marketing Policy Center Research Reports 019, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. 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.
    3. MacDonald, James M. & Nelson, Paul Jr., 1991. "Do the poor still pay more? Food price variations in large metropolitan areas," Journal of Urban Economics, Elsevier, vol. 30(3), pages 344-359, November.
    4. 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.
    5. Hall, Lana & Schmitz, Andrew & Cothern, James, 1979. "Beef Wholesale-Retail Marketing Margins and Concentration," Economica, London School of Economics and Political Science, vol. 46(183), pages 295-300, August.
    6. Evans, William N & Froeb, Luke M & Werden, Gregory J, 1993. "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 431-438, December.
    7. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ronald Cotterill & William Putsis, 2000. "Market Share and Price Setting Behavior for Private Labels and National Brands," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(1), pages 17-39, August.
    2. Chih-ching Yu & John M. Connor, 2002. "The price-concentration relationship in grocery retailing: Retesting Newmark," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 413-426.
    3. Hovhannisyan, Vardges & Bozic, Marin, 2016. "The Relationship Between Price And Market Structure: Evidence From The Us Food Retail Industry," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236222, Agricultural and Applied Economics Association.
    4. Ville Aalto-Setälä & Jouko Kinnunen & Katri Koistinen, 2004. "Reasons for high food prices in small market areas: The case of the Åland Islands," Agribusiness, John Wiley & Sons, Ltd., vol. 20(1), pages 17-29.
    5. Volpe, Richard J., III & Lavoie, Nathalie, 2006. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Working Paper Series 14515, University of Massachusetts, Amherst, Department of Resource Economics.
    6. Kim, Donghoon & Lopez, Rigoberto A. & Steinbach, Sandro, 2023. "Food Retail Configuration and Markups," 2023 Annual Meeting, July 23-25, Washington D.C. 335988, Agricultural and Applied Economics Association.
    7. Richard J. Volpe & Nathalie Lavoie, 2008. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 4-26.
    8. Ivana Blazkova, & Ondrej Dvoulety, 2017. "Is the price-cost margin affected by the market concentration? Evidence from the Czech food and beverages industry," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(2), pages 256-269, May.
    9. Martens, Bobby J. & Dooley, Frank J. & Kim, Sounghun, 2006. "The Effect Of Entry By Wal-Mart Supercenters On Retail Grocery Concentration," 2006 Annual meeting, July 23-26, Long Beach, CA 21101, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Crespi John M. & Marette Stephan, 2009. "Quality, Sunk Costs and Competition," Review of Marketing Science, De Gruyter, vol. 7(1), pages 1-36, August.
    11. Hernant, Mikael & Julander, Claes-Robert, 2020. "Does local competition make a difference for store profitability?: An empirical study of 168 Swedish supermarkets," SSE Working Paper Series in Business Administration 2020:4, Stockholm School of Economics.
    12. Francisco J. Más & Ricardo Sellers, 2006. "Technical Efficiency In The Retail Food Industry: The Influence Of Inventory Investment, Wage Levels, And Age Of The Firm," Working Papers. Serie EC 2006-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    13. Smith, David & Trant, Michael, 2002. "Performance in the Food Retailing Segment of the Agri-Food Chain," Agriculture and Rural Working Paper Series 28028, Statistics Canada.
    14. Sellers-Rubio, Ricardo & Más-Ruiz, Francisco J., 2009. "Efficiency vs. market power in retailing: Analysis of supermarket chains," Journal of Retailing and Consumer Services, Elsevier, vol. 16(1), pages 61-67.
    15. Volpe, Richard J., III & Lavoie, Nathalie, 2005. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," 2005 Annual meeting, July 24-27, Providence, RI 19188, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonis Michis, 2013. "Measuring Market Power in the Banking Industry in the Presence of Opportunity Cost," Working Papers 2013-1, Central Bank of Cyprus.
    2. Vishal Singh & Ting Zhu, 2008. "Pricing and Market Concentration in Oligopoly Markets," Marketing Science, INFORMS, vol. 27(6), pages 1020-1035, 11-12.
    3. Barry L. Bayus & William P. Putsis, Jr., 1999. "Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes," Marketing Science, INFORMS, vol. 18(2), pages 137-153.
    4. Declerck, Francis, 2005. "Typology and Financial Performance of Champagne Makers According to Distribution Channel," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 8(4), pages 1-22.
    5. O'Shaughnessy, Eric, 2019. "Non-monotonic effects of market concentration on prices for residential solar photovoltaics in the United States," Energy Economics, Elsevier, vol. 78(C), pages 182-191.
    6. Christos Genakos & Tommaso Valletti & Frank Verboven, 2018. "Evaluating market consolidation in mobile communications," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(93), pages 45-100.
    7. Johan F.M. Swinnen & Anneleen Vandeplas, 2010. "Market power and rents in global supply chains," Agricultural Economics, International Association of Agricultural Economists, vol. 41(s1), pages 109-120, November.
    8. Oliveira, Marcus V.R. & Oliveira, Alessandro V.M., 2018. "What drives effective competition in the airline industry? An empirical model of city-pair market concentration," Transport Policy, Elsevier, vol. 63(C), pages 165-175.
    9. Cotterill, Ronald W. & Haller, Lawrence E., 1991. "Determinants of Entry: A Study of Leading U.S. Supermarket Chain Entry Patterns," Research Reports 25226, University of Connecticut, Food Marketing Policy Center.
    10. Hovhannisyan, Vardges & Bozic, Marin, 2016. "The Relationship Between Price And Market Structure: Evidence From The Us Food Retail Industry," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236222, Agricultural and Applied Economics Association.
    11. Amir Jahan Khan, 2020. "Competitive Structure and Bank Loan Rate in Pakistan’s Banking Industry," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(3), pages 377-398.
    12. Haller, Lawrence E. & Cotterill, Ronald W., 1996. "Evaluating Traditional Share-Price and Residual Demand Measures of Market Power in the Catsup Industry," Research Reports 25193, University of Connecticut, Food Marketing Policy Center.
    13. Azzam, Azzeddine M., 1998. "Competition in the US meatpacking industry: is it history?," Agricultural Economics, Blackwell, vol. 18(2), pages 107-126, March.
    14. Ronald W. Cotterill, 1999. "An Antitrust Economic Analysis of the Proposed Acquisition of Supermarkets General Holdings Corporation be Ahold Acquisition Inc," Food Marketing Policy Center Research Reports 046, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    15. Hackbarth, Dirk & Taub, Bart, 2018. "Does the Potential to Merge Reduce Competition?," CEPR Discussion Papers 12732, C.E.P.R. Discussion Papers.
    16. Hoskins, Jake D. & Carson, Stephen J., 2022. "Industry conditions, market share, and the firm’s ability to derive business-line profitability from diverse technological portfolios," Journal of Business Research, Elsevier, vol. 149(C), pages 178-192.
    17. Laurie J. Bates & James I. Hilliard & Rexford E. Santerre, 2012. "Do Health Insurers Possess Market Power?," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1289-1304, April.
    18. Antonis Michis, 2013. "Measuring Market Power in the Banking Industry in the Presence of Opportunity Cost," Working Papers 2013-01, Central Bank of Cyprus.
    19. Robert DeYoung & Evren Ors, 2004. "Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions," Working Paper Series WP-04-25, Federal Reserve Bank of Chicago.
    20. Cesaltina Pacheco Pires & Duarte Brito, 2003. "Is there a 'change in efficiency theory'?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 337-345.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uconnr:25185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/fmuctus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.