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Market Competition And Metropolitan-Area Grocery Prices

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

Abstract

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.

Suggested Citation

  • Binkley, James K. & Connor, John M., 1996. "Market Competition And Metropolitan-Area Grocery Prices," Working Papers 25988, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
  • Handle: RePEc:ags:rpspwp:25988
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    File URL: http://purl.umn.edu/25988
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    References listed on IDEAS

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    1. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-391, June.
    2. Ronald W. Cotterill, 1991. "Food Retailing: Mergers, Leveraged Buyouts, and Performance," Food Marketing Policy Center Research Reports 014, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    3. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
    4. 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.
    5. 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.
    6. 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 379-386, August.
    7. Bruce L. Benson & Merle D. Faminow, 1985. "An Alternative View of Pricing in Retail Food Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(2), pages 296-306.
    8. 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 346-346.
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    Citations

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    Cited by:

    1. Digal, Larry N. & Ahmadi-Esfahani, Fredoun Z., 2002. "Market power analysis in the retail food industry: a survey of methods," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
    2. Leschewski, Andrea Marie & Weatherspoon, Dave D., 2014. "Fast Food Restaurant Pricing Strategies in Michigan Food Deserts," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 17(A).
    3. Bonanno, Alessandro & Lopez, Rigoberto A., 2004. "Private Labels, Retail Configuration, and Fluid Milk Prices," Research Reports 25222, University of Connecticut, Food Marketing Policy Center.
    4. Kinsey, Jean D., 1998. "Concentration Of Ownership In Food Retailing: A Review Of The Evidence About Consumer Impact," Working Papers 14329, University of Minnesota, The Food Industry Center.
    5. Richard J. Volpe & Nathalie Lavoie, 2008. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 4-26.
    6. Frigon, Mathieu & Doyon, Maurice & Romain, Robert F.J., 1999. "Asymmetry in Farm-Retail Price Transmission in the Northeastern Fluid Milk Market," Research Reports 25220, University of Connecticut, Food Marketing Policy Center.
    7. Chih-ching Yu & John M. Connor, 2002. "The price-concentration relationship in grocery retailing: Retesting Newmark," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 413-426.
    8. Martens, Bobby J. & Dooley, Frank J. & Kim, Sounghun, 2006. "The Effect Of Entry By Wal-Mart Supercenters On Retail Grocery Concentration," 2006 Annual meeting, July 23-26, Long Beach, CA 21101, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Volpe, Richard J., III & Lavoie, Nathalie, 2005. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," 2005 Annual meeting, July 24-27, Providence, RI 19188, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Chung, Chanjin & Henneberry, Shida Rastegari & Tostao, Emilio, 2004. "Will The Voluntary Checkoff Program Be The Answer? An Analysis Of Optimal Advertising And Free-Rider Problem In The U.S. Beef Industry," 2004 Annual Meeting, February 14-18, 2004, Tulsa, Oklahoma 34694, Southern Agricultural Economics Association.

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