Network externalities in supermarket retailing

Timothy Richards and Stephen Hamilton

European Review of Agricultural Economics, 2013, vol. 40, issue 1, 1-22

Abstract: Supermarkets face a two-sided demand for shelf space: consumers demand variety and suppliers demand shelf space. We exploit the asymmetric ability of consumers and suppliers to internalise network effects to derive a novel test of network effects in multi-product retail markets. Because consumers fully internalise network effects but suppliers cannot, retail margins rise and wholesale margins fall as variety increases. We test this hypothesis using retail scanner data for a ‘shopping basket’ of items from competing retailers using a structural model of retail variety and vertical pricing. Our results support the existence of positive, two-sided network effects in supermarket retailing. , Oxford University Press.

Date: 2013
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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