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Supermarket Choice and Supermarket Competition in Market Equilibrium

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  • Howard Smith

Abstract

Multi-store firms are common in the retailing industry. Theory suggests that cross-elasticities between stores of the same firm enhance market power. To evaluate the importance of this effect in the U.K. supermarket industry, we estimate a model of consumer choice and expenditure using three data sources: profit margins for each chain, a survey of consumer choices and a data-set of store characteristics. To permit plausible substitution patterns, the utility model interacts consumer and store characteristics. We measure market power by calculating the effect of merger and demerger on Nash equilibrium prices. Demerger reduces the prices of the largest firms by between 2 and 3.8% depending on local concentration; mergers between the largest firms lead to price increases up to 7.4%. Copyright 2004, Wiley-Blackwell.

Suggested Citation

  • Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 235-263.
  • Handle: RePEc:oup:restud:v:71:y:2004:i:1:p:235-263
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    File URL: http://hdl.handle.net/10.1111/0034-6527.00283
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