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The rise of discounters and its impact on concentration, market power and welfare

Author

Listed:
  • Martin O'Connell

    (Institute for Fiscal Studies)

  • Howard Smith

    (Institute for Fiscal Studies)

  • Øyvind Thomassen

    (Institute for Fiscal Studies)

Abstract

We quantify changes in concentration, market power and welfare in the UK grocery retail sector from 2002 to 2021. We document that an expansion of discounter-format retailers coincided with declining retail and manufacturer concentration across most narrowly defined product categories. We develop an equilibrium model that incorporates consumer choice over retailers and products with Nash-in-Nash bargaining between manufacturers and retailers. Applying this model to the breakfast cereals market, we find that discounter expansion—through store openings, efficiency gains and changes to products—reduced concentration and average prices, increased consumer and total surplus, and especially benefited households near newly opened stores.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Martin O'Connell & Howard Smith & Øyvind Thomassen, 2025. "The rise of discounters and its impact on concentration, market power and welfare," IFS Working Papers W25/29, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:25/29
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    File URL: https://ifs.org.uk/sites/default/files/2025-09/WP202529-The-rise-of-discounters-and-its-impact-on-concentration-market-power-and-welfare.pdf
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    References listed on IDEAS

    as
    1. Øyvind Thomassen & Howard Smith & Stephan Seiler & Pasquale Schiraldi, 2017. "Multi-category Competition and Market Power: A Model of Supermarket Pricing," American Economic Review, American Economic Association, vol. 107(8), pages 2308-2351, August.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. Hamish Low & Costas Meghir, 2017. "The Use of Structural Models in Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 33-58, Spring.
    4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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