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Competition and Product Quality in the Supermarket Industry

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  • David A. Matsa

Abstract

This article analyzes the effect of competition on a supermarket firm's incentive to provide product quality. In the supermarket industry, product availability is an important measure of quality. Using U.S. Consumer Price Index microdata to track inventory shortfalls, I find that stores facing more intense competition have fewer shortfalls. Competition from Walmart--the most significant shock to industry market structure in half a century--decreased shortfalls among large chains by about a third. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality. Copyright 2011, Oxford University Press.

Suggested Citation

  • David A. Matsa, 2011. "Competition and Product Quality in the Supermarket Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1539-1591.
    • Handle: RePEc:oup:qjecon:v:126:y:2011:i:3:p:1539-1591
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    File URL: http://hdl.handle.net/10.1093/qje/qjr031
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