IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Intra- and Interformat Competition Among Discounters and Supermarkets

  • Kathleen Cleeren

    ()

    (Maastricht University, 6200 MD Maastricht, The Netherlands)

  • Frank Verboven

    ()

    (Catholic University Leuven, 3000 Leuven, Belgium)

  • Marnik G. Dekimpe

    ()

    (Tilburg University, 5000 LE Tilburg, The Netherlands, and Catholic University Leuven, 3000 Leuven, Belgium)

  • Katrijn Gielens

    ()

    (University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

The price-aggressive discount format, popularized by chains such as Aldi and Lidl, is very successful in most Western economies. Its success is a major source of concern for traditional supermarkets. Discounters not only have a direct effect on supermarkets' market shares, but they also exert considerable pressure to improve operational efficiency and/or to decrease prices. We use an empirical entry model to study the degree of intra- and interformat competition between discounters and supermarkets. Information on the competitive impact of new entrants is derived from the observed entry decisions of supermarkets and discounters in a large cross section of local markets, after controlling for a number of local market characteristics. In our modeling framework, we endogenize the number of retailers and allow for asymmetric intra- and interformat competitive effects in a flexible way. We apply our modeling approach to the German grocery industry, where the discount format has stabilized after two decades of continued growth. We find evidence of intense competition within both the supermarket and discounter format, although competition between supermarkets is found to be more severe. Most importantly, discounters only start to affect the profitability of conventional supermarkets from the third entrant onwards. This may explain why many retailers rush to add a discount chain to their portfolio: early entrants may benefit from the growth of the discount-prone segment without cannibalizing the profits of their more conventional supermarket stores.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dx.doi.org/10.1287/mksc.1090.0529
Download Restriction: no

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 29 (2010)
Issue (Month): 3 (05-06)
Pages: 456-473

as
in new window

Handle: RePEc:inm:ormksc:v:29:y:2010:i:3:p:456-473
Contact details of provider: Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
Phone: +1-443-757-3500
Fax: 443-757-3515
Web page: http://www.informs.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  2. Martin Carree & Marcus Dejardin, 2007. "‘Entry Thresholds and Actual Entry and Exit in Local Markets’," Small Business Economics, Springer, vol. 29(1), pages 203-212, June.
  3. Jerry Hausman & Ephraim Leibtag, 2007. "Consumer benefits from increased competition in shopping outlets: Measuring the effect of Wal-Mart," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1157-1177.
  4. Schaumans, Catherine & Verboven, Frank, 2006. "Entry and Regulation - Evidence from Health Care Professions," CEPR Discussion Papers 5482, C.E.P.R. Discussion Papers.
  5. David R. Bell & James M. Lattin, 1998. "Shopping Behavior and Consumer Preference for Store Price Format: Why “Large Basket” Shoppers Prefer EDLP," Marketing Science, INFORMS, vol. 17(1), pages 66-88.
  6. repec:dgr:kubcen:200576 is not listed on IDEAS
  7. Pradeep Chintagunta & Tülin Erdem & Peter E. Rossi & Michel Wedel, 2006. "Structural Modeling in Marketing: Review and Assessment," Marketing Science, INFORMS, vol. 25(6), pages 604-616, 11-12.
  8. Ciliberto, Federico & Tamer, Elie, 2009. "Market structure and multiple equilibria in airline markets," MPRA Paper 38635, University Library of Munich, Germany.
  9. Ram C. Rao & Niladri Syam, 2001. "Equilibrium Price Communication and Unadvertised Specials by Competing Supermarkets," Marketing Science, INFORMS, vol. 20(1), pages 61-81, June.
  10. Asplund, Marcus & Sandin, Rickard, 1999. "The Number of Firms and Production Capacity in Relation to Market Size," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 69-85, March.
  11. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  12. repec:ner:tilbur:urn:nbn:nl:ui:12-194334 is not listed on IDEAS
  13. Rajiv Lal & Ram Rao, 1997. "Supermarket Competition: The Case of Every Day Low Pricing," Marketing Science, INFORMS, vol. 16(1), pages 60-80.
  14. Bresnahan, Timothy F. & Reiss, Peter C., 1991. "Empirical models of discrete games," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 57-81.
  15. Ting Zhu & Vishal Singh & Anthony J. Dukes, 2005. "Local Competition and Impact of Entry by a Dominant Retailer," CIE Discussion Papers 2005-05, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  16. Manuszak, Mark D., 2002. "Endogenous market structure and competition in the 19th century American brewing industry," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 673-692, May.
  17. Deleersnyder, B. & Dekimpe, M.G. & Steenkamp, J.E.B.M. & Koll, O., 2007. "Win-win strategies at discount stores," Other publications TiSEM 34fbe624-0ee7-4c52-b640-7, Tilburg University, School of Economics and Management.
  18. David Soberman, 2005. "Questioning Conventional Wisdom About Competition in Differentiated Markets," Quantitative Marketing and Economics, Springer, vol. 3(1), pages 41-70, January.
  19. David Dranove & Anne Gron & Michael J. Mazzeo, 2003. "Differentiation and Competition in HMO Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 433-454, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:29:y:2010:i:3:p:456-473. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.