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Multi-category Competition and Market Power: A Model of Supermarket Pricing

Author

Listed:
  • Øyvind Thomassen
  • Howard Smith
  • Stephan Seiler
  • Pasquale Schiraldi

Abstract

In many competitive settings, consumers buy multiple product categories, and some prefer to use a single firm, generating complementary cross-category price effects. To study pricing in supermarkets, an organizational form where these effects are internalized, we develop a multi-category, multi-seller demand model and estimate it using UK consumer data. This class of model is used widely in theoretical analysis of retail pricing. We quantify cross-category pricing effects and find that internalizing them substantially reduces market power. We find that consumers inclined to one-stop (rather than multi-stop) shopping have a greater pro-competitive impact because they generate relatively large cross-category effects.

Suggested Citation

  • Øyvind Thomassen & Howard Smith & Stephan Seiler & Pasquale Schiraldi, 2017. "Multi-category Competition and Market Power: A Model of Supermarket Pricing," American Economic Review, American Economic Association, vol. 107(8), pages 2308-2351, August.
  • Handle: RePEc:aea:aecrev:v:107:y:2017:i:8:p:2308-51
    Note: DOI: 10.1257/aer.20160055
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    Cited by:

    1. repec:aea:aejmic:v:11:y:2019:i:1:p:124-56 is not listed on IDEAS
    2. Bhaskar, Venkataraman & Roketskiy, Nikita, 2019. "Consumer Privacy and Serial Monopoly," CEPR Discussion Papers 13686, C.E.P.R. Discussion Papers.
    3. Brian Adams & Kevin R. Williams, 2019. "Zone Pricing in Retail Oligopoly," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 124-156, February.
    4. Fan, Linlin, 2017. "The Consumer Welfare Impact of Expanding Access to Fruits and Vegetables in Food Deserts," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259164, Agricultural and Applied Economics Association.
    5. Hollenbeck, Brett & Uetake, Kosuke, 2018. "Taxation and Market Power in the Legal Marijuana Industry," MPRA Paper 90085, University Library of Munich, Germany.
    6. Steen, Frode, 2019. "Hump-shaped cross-price effects and the extensive margin in cross-border shopping," CEPR Discussion Papers 13650, C.E.P.R. Discussion Papers.
    7. Matteo Benetton, 2017. "Lenders' Competition and Macro-prudential Regulation: A Model of the UK Mortgage Supermarket," 2017 Meeting Papers 1001, Society for Economic Dynamics.
    8. Friberg, Richard & Steen, Frode & Ulsaker, Simen A., 2018. "Hump-shaped cross-price effects and the extensive margin in cross-border shopping," Discussion Paper Series in Economics 29/2018, Norwegian School of Economics, Department of Economics.
    9. Friberg, Richard & Steen, Frode & Ulsaker, Simen A., 2018. "Hump-shaped cross-price effects and the extensive margin in cross-border shopping," Discussion Paper Series in Economics 20/2019, Norwegian School of Economics, Department of Economics, revised 23 Sep 2019.
    10. Bronnenberg, Bart & Klein, Tobias & Xu, Yan, 2018. "Consumer Time Budgets and Grocery Shopping Behavior," CEPR Discussion Papers 13302, C.E.P.R. Discussion Papers.
    11. Ma, Meilin & Saitone, Tina L. & Volpe, Richard J. & Sexton, Richard J. & Saksena, Michelle, 2018. "Market Concentration, Market Shares, and Retail Food Prices: Evidence from the U.S. Women, Infants, and Children Program," 2018 Annual Meeting, August 5-7, Washington, D.C. 274205, Agricultural and Applied Economics Association.
    12. Jorge Florez-Acosta & Daniel Herrera-Araujo, 2017. "Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior," PSE Working Papers halshs-01467435, HAL.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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