Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets

Giovanni Anania and Rosanna Nistico

No 125594, 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil from International Association of Agricultural Economists

Abstract: Price dispersion, i.e. a homogeneous product being sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, side by side large supermarkets. The extent of observed price dispersion is quite high, suggesting that monopolistic competition prevails as a result of the heterogeneity of consumers and services offered. When prices in an urban area (where the spatial concentration of sellers is much higher and consumer search costs significantly lower) are compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition do not yield lower prices; quite the contrary, they are, on average, higher in the urban area for 11 of the 14 products considered. Supermarkets proved to be often, but not always, less expensive than traditional retailers, although average savings from food shopping at supermarkets were extremely low. Finally, the results of the study suggest that retailers have different pricing strategies; these differences emerge both at the firm level and for supermarkets within the same chain. The results presented in the paper suggest that what is important in explaining price dispersion is the contemporaneous heterogeneity of retailers (in terms of services) and consumers (in terms of search and shopping preferences), which makes it possible for a monopolistic competition structure of the market to emerge and for small traditional food retailers to remain in business.

Keywords: Agribusiness; Consumer/Household Economics; Demand and Price Analysis; Industrial Organization (search for similar items in EconPapers)
Pages: 33
Date: 2012
New Economics Papers: this item is included in nep-agr, nep-bec, nep-com, nep-mkt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae12:125594

DOI: 10.22004/ag.econ.125594

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