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Concentration Of Ownership In Food Retailing: A Review Of The Evidence About Consumer Impact

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  • Kinsey, Jean D.
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    Abstract

    Increased concentration in ownership of retail and wholesale food companies in the United States naturally leads to the question "How does concentration of ownership affect consumers?" Does it lead to higher or lower food prices, better or worse service, more or less choice between stores and among products, and more or less employment and earning opportunities in the food sector? Since the early 1980's the percent of total sales captured by the top four supermarket chains have gone from 18 to 22 percent; food prices decreased, food expenditures relative to income and employment and earnings have all fallen modestly. Choice and service are harder to measure. Competition at the local level appears to be alive and well since numerous types of food retailers offer attractive substitutes for food purchased in a grocery store. The relationship between concentration, prices and profits has been studied and examined for several decades using various economic and business theories and several sources of data. These studies speak to the overall behavior and performance of the industry and provide a perspective on the consolidation and shifts in power that appear to be taking place. The results of many of these studies are summarized in this paper. Findings focus on two major questions: 1) Does the concentration of retail food firms in local markets increase food prices and firms' profits? 2) Has the retail sector become relatively more profitable and, thus, more powerful than the manufacturing sector? The results are mixed, especially with regard to price. Concentration tends to be associated with both increased and decreased prices. Recent work indicates prices tend to increase in dry grocery items, but not in fresh and chilled foods. And, concentration at the wholesale level may lower food prices. Profits of the parent company generally rise with concentration, but the reason is unclear. Most studies conclude it is due to lower costs made possible by economies of scale in procurement or vertical coordination with suppliers and better use of information technology. There was no evidence that retailers' profits are increasing faster than food manufacturers' profits.

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    Bibliographic Info

    Paper provided by University of Minnesota, The Food Industry Center in its series Working Papers with number 14329.

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    Date of creation: 1998
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    Handle: RePEc:ags:umrfwp:14329

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    Web page: http://foodindustrycenter.umn.edu/
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    Keywords: Agribusiness; Consumer/Household Economics; Industrial Organization; Marketing;

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    1. Chevalier, Judith A, 1995. "Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry," American Economic Review, American Economic Association, vol. 85(3), pages 415-35, June.
    2. Viaene, Jacques & Gellynck, Xavier, 1995. "Structure, Conduct and Performance of the European Food Sector," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 22(3), pages 282-95.
    3. Cotterill, Ronald W & Haller, Lawrence E, 1992. "Barrier and Queue Effects: A Study of Leading U.S. Supermarket Chain Entry Patterns," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 427-40, December.
    4. 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.
    5. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. John M. Connor, 1996. "Did the Competitive Regime Switch in the 1980s?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1192-1197.
    7. Newmark, Craig M., 1990. "A new test of the price-concentration relationship in grocery retailing," Economics Letters, Elsevier, vol. 33(4), pages 369-373, August.
    8. Binkley, James K. & Connor, John M., 1996. "Market Competition And Metropolitan-Area Grocery Prices," Working Papers 25988, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    9. Elitzak, Howard, 1999. "Food Cost Review, 1950-97," Agricultural Economics Reports 34053, United States Department of Agriculture, Economic Research Service.
    10. 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.
    11. Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
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    Cited by:
    1. repec:fth:prinin:423 is not listed on IDEAS
    2. Wendt, Minh & Kinsey, Jean D. & Kaufman, Phillip R., 2008. "Food Accessibility in the Inner City: What Have We Learned, A Literature Review 1963-2006," Working Papers 37625, University of Minnesota, The Food Industry Center.
    3. Minten, Bart & Reardon, Thomas & Sutradhar, Rajib, 2010. "Food Prices and Modern Retail: The Case of Delhi," World Development, Elsevier, vol. 38(12), pages 1775-1787, December.
    4. Davis, David E., 2009. "Price and promotion effects of supermarket mergers," SDSU Working Papers in Progress 12009, South Dakota State University, Department of Economics, revised Jun 2010.
    5. repec:fth:prinin:446 is not listed on IDEAS
    6. Figui, Muriel & Moustier, Paule, 2009. "Market appeal in an emerging economy: Supermarkets and poor consumers in Vietnam," Food Policy, Elsevier, vol. 34(2), pages 210-217, April.
    7. McCluskey, Jill J. & O'Rourke, A. Desmond, 2000. "Relationships Between Produce Supply Firms And Retailers In The New Food Supply Chain," Journal of Food Distribution Research, Food Distribution Research Society, vol. 31(03), November.
    8. 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.
    9. Swinnen, Johan F.M. & Vandeplas, Anneleen, 2009. "Market Power and Rents in Global Supply Chains," 2009 Conference, August 16-22, 2009, Beijing, China 53213, International Association of Agricultural Economists.
    10. Burroughs, Rick & Harper, Deborah, 2002. "An Analysis of Profits within the Canadian Food Processing Sector," Agriculture and Rural Working Paper Series 28018, Statistics Canada.

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