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Market Competition And Metropolitan-Area Grocery Prices

  • Binkley, James K.
  • Connor, John M.

This paper examines the relationship of 1987 retail grocery prices to supermarket sales concentration across 95 U.S. metropolitan areas. The regression model incorporates a large number of population, retail-cost, and retail competition factors and separate prices by type of grocery item. We find that the concentration-price relationship is sensitive to item type: positive for packaged, branded, dry groceries and unrelated for produce, meat, and dairy product prices. As for market rivalry, we find that small grocery stores provide no grocery price competition for supermarkets. However, branded grocery prices are driven down by fast-food places and by rapid price churning, whereas for unbranded foods the presence of warehouse stores places downward pressure on supermarket prices while fast-food presence does not. For the branded-groceries component, we also find prices higher in large, fast-growing, low- income, Eastern cities. We also find that cities where rents, wages, and electricity costs are high tend to have high dry grocery prices. However, for the unbranded-products component retail costs are unrelated to prices, and cities in the South have the highest prices.

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File URL: http://purl.umn.edu/25988
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Paper provided by Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance in its series Working Papers with number 25988.

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Date of creation: 1996
Date of revision:
Handle: RePEc:ags:rpspwp:25988
Contact details of provider: Postal: Draper Hall, College of Food and Natural Resources, Amherst, MA 01003
Web page: http://www.umass.edu/ne165/
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  1. Cotterill, Ronald W., 1991. "Food Retailing: Mergers, Leveraged Buyouts, and Performance," Research Reports 25217, University of Connecticut, Food Marketing Policy Center.
  2. Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-86, August.
  3. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  4. Kim, Byung-Do & Blattberg, Robert C & Rossi, Peter E, 1995. "Modeling the Distribution of Price Sensitivity and Implications for Optimal Retail Pricing," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 291-303, July.
  5. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  6. William J. Baumol & Richard E. Quandt & Harold T. Shapiro, 1964. "Oligopoly Theory and Retail Food Pricing," The Journal of Business, University of Chicago Press, vol. 37, pages 346.
  7. Lamm, R McFall, 1981. "Prices and Concentration in the Food Retailing Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 30(1), pages 67-78, September.
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