Unraveling the price-concentration relationship: The Role of national distribution centers in Chilean supermarket industry consolidation

Fernando Díaz, Alexander Galetovic, Roberto Muñoz and Jocelyn Tapia

Economic Modelling, 2024, vol. 130, issue C

Abstract: We examine the relationship between prices, costs, concentration, and the intensity of competition in the Chilean supermarket industry during its consolidation process in the late 1990s. This process was characterized by increased concentration, lower prices paid by consumers, and higher levels of competition between firms. We argue that behind this phenomenon lies the adoption of National Distribution Centers by supermarket chains, which represented a technological cost-saving change that intensified competition and reduced profit margins. We develop a simple theoretical model that allows for cost heterogeneity across firm types and provides testable empirical implications regarding the underlying price-concentration relationship. Our results are consistent with a higher degree of price competition in food retailing and can explain the structure of this industry 20 years after the start of its consolidation process.

Keywords: Price-concentration; National distribution centers; Technological change; Cost heterogeneity; Toughness of competition (search for similar items in EconPapers)
JEL-codes: D21 D22 D23 D43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323003978

DOI: 10.1016/j.econmod.2023.106585

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