Retail Market Power in a Shopping Basket Model of Supermarket Competition

Timothy J. Richards, Stephen Hamilton and Koichi Yonezawa

Journal of Retailing, 2018, vol. 94, issue 3, 328-342

Abstract: Supermarket retailers typically operate with relatively low margins, suggesting a highly competitive retail environment. However, despite the fact that consumers purchase an entire shopping basket at a time from supermarkets, this evidence is largely based on models of retail competition with single-category purchases. In this paper, we develop and test an empirical model of retail price competition that explicitly accounts for the effect of demand complementarity among items in consumer shopping baskets. Relative to the case where consumers purchase products with independent demands, we demonstrate that equilibrium prices are higher for all items when retailers take demand-complementarity into account. Our findings indicate that non-price strategies intended to encourage complementarity, such as co-merchandising, strategic shelf-positioning, or featuring complementary goods tend to soften price competition, and lead to higher equilibrium prices.

Keywords: Complementarity; Retailing; Pricing; Supermarkets; Oligopolies (search for similar items in EconPapers)
JEL-codes: D43 L13 L81 M31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Retail Market Power in a Shopping Basket Model of Supermarket Competition (2017)
Working Paper: Retail Market Power in a Shopping Basket Model of Supermarket Competition (2016)
Working Paper: Retail Market Power in a Shopping Basket Model of Supermarket Competition (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jouret:v:94:y:2018:i:3:p:328-342

DOI: 10.1016/j.jretai.2018.04.004

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