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The entry of a hard discount supermarket: price effects

Author

Listed:
  • Gómez-Lobo, Andrés

    (Universidad de Chile)

  • Jiménez, Juan Luis

    () (Universidad de Las Palmas de Gran Canaria)

  • Perdiguero , Jordi

    (Universitat Autónoma de Barcelona, GiM & IREA)

Abstract

In this paper we study how an incumbent supermarket reacts when entry by a new operator is announced but does not know the product variety that the entrant will offer. We use a database obtained from a special survey for supermarkets in Gran Canaria to estimate how incumbents reacted to entry in the products sold and not sold by the new entrant (LIDL). We show that there is evidence that prices for all goods prior to entry were initially lower in supermarkets close to the future entrant compared to supermarkets further away. However, after entry incumbents’ prices for products not sold by the entrant actually rose near the entrant’s new stores, compared to a suitable control group of supermarkets farther away.

Suggested Citation

  • Gómez-Lobo, Andrés & Jiménez, Juan Luis & Perdiguero , Jordi, 2015. "The entry of a hard discount supermarket: price effects," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 31, pages 143-154.
  • Handle: RePEc:ris:invreg:0286
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    References listed on IDEAS

    as
    1. Emek Basker, 2005. "Job Creation or Destruction? Labor Market Effects of Wal-Mart Expansion," The Review of Economics and Statistics, MIT Press, pages 174-183.
    2. Emek Basker & Michael Noel, 2009. "The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 977-1009, December.
    3. 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.
    4. Ting Zhu & Vishal Singh, 2009. "Spatial competition with endogenous location choices: An application to discount retailing," Quantitative Marketing and Economics (QME), Springer, vol. 7(1), pages 1-35, March.
    5. Griffith, Rachel & Harmgart, Heike, 2008. "Supermarkets and Planning Regulation," CEPR Discussion Papers 6713, C.E.P.R. Discussion Papers.
    6. Ellickson, Paul B., 2006. "Quality competition in retailing: A structural analysis," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 521-540, May.
    7. Sven-Olov Daunfeldt & Matilda Orth & Niklas Rudholm, 2010. "Opening Local Retail Food Stores: A Real-Options Approach," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 373-387, September.
    8. Lucia Foster & John Haltiwanger & C. J. Krizan, 2006. "Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 748-758, November.
    9. Loreto Lira & Rosario Rivero & Rodrigo Vergara, 2007. "Entry and Prices: Evidence from the Supermarket Sector," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(4), pages 237-260, December.
    10. Abe, Naohito & Kawaguchi, Daiji, 2010. "Incumbent's price response to new entry: The case of Japanese supermarkets," Journal of the Japanese and International Economies, Elsevier, vol. 24(2), pages 196-212, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Entry; Product Variety; Prices; Retailing;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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