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Multi-category Competition and Market Power: A Model of Supermarket Pricing

Øyvind Thomassen, Howard Smith (), Stephan Seiler and Pasquale Schiraldi

American Economic Review, 2017, vol. 107, issue 8, 2308-51

Abstract: In many competitive settings, consumers buy multiple product categories, and some prefer to use a single firm, generating complementary cross-category price effects. To study pricing in supermarkets, an organizational form where these effects are internalized, we develop a multi-category, multi-seller demand model and estimate it using UK consumer data. This class of model is used widely in theoretical analysis of retail pricing. We quantify cross-category pricing effects and find that internalizing them substantially reduces market power. We find that consumers inclined to one-stop (rather than multi-stop) shopping have a greater pro-competitive impact because they generate relatively large cross-category effects.

JEL-codes: D12 L11 L13 L81 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20160055
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