Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, March 16, 2007

Rivalry Among Supermarket Retailers

Posted by D. Daniel Sokol

What is it about Sokol and posting on supermarkets?  Yes, this is a pet issue.  It probably has to do with a number of related factors:

1. I have a very high metabolism rate (At 6'3, I weigh 152 lbs.), so we are often running out of food. 

2.  I have a pregnant wife and a two year old daughter.  Between the two of them, we are at the supermarket quite a bit.

3.  Supermarkets make for very interesting academic study.

I focus the rest of this post on the third of these topics (though if my mother was guest blogging, she would focus on the first-- she is convinced that I need to put on some weight and has been since I was 16.  Then again, she still calls sometimes to make sure that I am dressing warmly during the winter).

A recent article that appeared in the American Journal of Agriculture Economics by Timothy Richards and Stephen Hamilton examines Rivalry in Price and Variety Among Supermarket Retailers.

ABSTRACT: Recent theoretical models of retail competition suggest that product heterogeneity is critical to retail price and variety strategies. This article provides empirical evidence on supermarket retailers' price and variety strategies using a nested constant elasticity of substitution (NCES) modeling framework. The model is estimated using chain-level scanner data for four major grocery chains in a large, urban West Coast market. The results show that retailers compete for market share using both price and variety. While they all tend to follow moderately cooperative pricing strategies, the extent to which they follow cooperative strategies in variety is less homogeneous.

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