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Intra- and Interformat Competition Among Discounters and Supermarkets

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Kathleen Cleeren & Frank Verboven & Marnik G. Dekimpe & Katrijn Gielens, 2010. "Intra- and Interformat Competition Among Discounters and Supermarkets," Marketing Science, INFORMS, vol. 29(3), pages 456-473, 05-06.
  • Handle: RePEc:inm:ormksc:v:29:y:2010:i:3:p:456-473
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    File URL: http://dx.doi.org/10.1287/mksc.1090.0529
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    References listed on IDEAS

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    More about this item

    Keywords

    empirical entry model; hard discounters; interformat competition; grocery industry;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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