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Multi-category demand and supermarket pricing

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  • Smith, Howard
  • Thomassen, Øyvind

Abstract

When a supermarket cuts its price for one product category it may increase the demand for another by drawing more consumers into the store. We call this a multi-category effect. We contrast the prominent role that the multi-category nature of supermarket shopping has enjoyed in competition policy discussion – and in the theoretical literature on supermarket pricing – with its lack of prominence in the empirical IO literature on pricing incentives for products sold in supermarkets. Using a data set of store-category choices from the UK we document empirical features of supermarket shopping and find that these are consistent with the multi-store multi-category framework of many theoretical models of retail pricing. We report on a project in progress that empirically models consumer demand allowing for multiple demand categories and two store shopping, and describe how the model can be used to measure the empirical importance of multi-category effects in supermarket pricing.

Suggested Citation

  • Smith, Howard & Thomassen, Øyvind, 2012. "Multi-category demand and supermarket pricing," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 309-314.
  • Handle: RePEc:eee:indorg:v:30:y:2012:i:3:p:309-314
    DOI: 10.1016/j.ijindorg.2011.12.005
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    References listed on IDEAS

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    1. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
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    14. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
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    Citations

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    Cited by:

    1. Heimeshoff, Ulrich & Klein, Gordon J., 2013. "Bargaining power and local heroes," DICE Discussion Papers 87, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Timothy Richards & Stephen Hamilton & Koichi Yonezawa, 2015. "Retail Market Power in a Shopping Basket Model of Supermarket Competition," Working Papers 1503, California Polytechnic State University, Department of Economics.
    3. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    4. Richards, Timothy J. & Hamilton, Stephen F. & Allender, William, 2016. "Search and price dispersion in online grocery markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 255-281.
    5. Bonnet, Céline & Bouamra-Mechemache, Zohra & Richards, Timothy J., 2017. "Complementarity and Bargaining Power," TSE Working Papers 16-772, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    Bundles; Retailing; Pricing;

    JEL classification:

    • 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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