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Competition Effects of Supermarket Services


  • Alessandro Bonanno
  • Rigoberto A. Lopez


This article investigates the competition effects of supermarket services using fluid milk as a case study. A simultaneous equation model for services and price competition is estimated with scanner data from fifteen supermarket chains using two alternative measures of services, namely store size and principal components of in-store services. Empirical results show that increasing services results in economies of scope, greater supermarket chain-level demand, lower price elasticity of demand, and enhanced market power, leading to higher milk prices and quantity sold. We conclude that, as result of service competition, supermarkets differentiate themselves from competitors and successfully attract less price-sensitive consumers. Copyright 2007, Oxford University Press.

Suggested Citation

  • Alessandro Bonanno & Rigoberto A. Lopez, 2007. "Competition Effects of Supermarket Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 555-568.
  • Handle: RePEc:oup:ajagec:v:91:y:2007:i:3:p:555-568

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    References listed on IDEAS

    1. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-391, June.
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    14. Rigoberto Lopez & Azzeddine Azzam & Carmen Lirón-España, 2002. "Market Power and/or Efficiency: A Structural Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(2), pages 115-126, March.
    15. Ronald W. Cotterill & Tirtha Pratim Dhar, 2003. "Oligopoly Pricing with Differentiated Products: The Boston Fluid Milk Market Channel," Food Marketing Policy Center Research Reports 074, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
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    Cited by:

    1. Andreas Widenhorn & Klaus Salhofer, 2014. "Price Sensitivity Within and Across Retail Formats," Agribusiness, John Wiley & Sons, Ltd., vol. 30(2), pages 184-194, March.
    2. Davis, David E., 2009. "Price and promotion effects of supermarket mergers," SDSU Working Papers in Progress 12009, South Dakota State University, Department of Economics, revised Jun 2010.
    3. Bonanno, Alessandro & Ghosh, Gaurav S., 2010. "SNAP Efficacy and Food Access – A Nationwide Spatial Analysis," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116437, European Association of Agricultural Economists;Agricultural and Applied Economics Association.
    4. Bonanno, Alessandro & Chenarides, Lauren & Goetz, Stephan J., 2012. "Limited Food Access as an Equilibrium Outcome: An Empirical Analysis," 2012 AAEA/EAAE Food Environment Symposium, May 30-31, Boston, MA 123196, Agricultural and Applied Economics Association.
    5. Stephen Martin, 2012. "Market Structure and Market Performance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(2), pages 87-108, March.

    More about this item

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco


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