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Entry and Exit in Grocery Retailing: Local Pre-Emption and Social Efficiency

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  • Howard Smith

Abstract

This paper develops an asymmetric price setting oligopoly model of store opening and closure decisions in the UK supermarket industry which is estimated using a survey of consumer choices and a dataset of store characteristics. The model is used to examine the strategic local entry and exit behaviour of the firms and the social efficiency of stores numbers and store characteristics. It is found that firms use store openings to pre-empt rival competition and there is a degree of local clustering. A welfare analysis of store characteristics and store numbers shows that most existing stores and some hypothetical extra stores are welfare enhancing at the margin. Location is not optimal but location inefficiencies are small and firms have incentives to relocate in socially preferred directions. Recent trends in store characteristics - larger stores and more stores openings by large firms - are welfare improving.

Suggested Citation

  • Howard Smith, 2000. "Entry and Exit in Grocery Retailing: Local Pre-Emption and Social Efficiency," Economics Series Working Papers 7, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:7
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    References listed on IDEAS

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    Cited by:

    1. Powell, Philip T. & Laufer, Ron, 2010. "The promises and constraints of consumer-directed healthcare," Business Horizons, Elsevier, vol. 53(2), pages 171-182, March.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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