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Supermarket Choice and Supermarket Competition in Market Equilibrium

Supermarket Choice and Supermarket Competition in Market Equilibrium 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%. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Supermarket Choice and Supermarket Competition in Market Equilibrium

The Review of Economic Studies , Volume 71 (1) – Jan 1, 2004

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References (30)

Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
Subject
Original Articles
ISSN
0034-6527
eISSN
1467-937X
DOI
10.1111/0034-6527.00283
Publisher site
See Article on Publisher Site

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%.

Journal

The Review of Economic StudiesOxford University Press

Published: Jan 1, 2004

Keywords: JEL classification G34 L11 L81

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