Competition and Product Quality in the Supermarket Industry

David A. Matsa

The Quarterly Journal of Economics, 2011, vol. 126, issue 3, 1539-1591

Abstract: This article analyzes the effect of competition on a supermarket firm's incentive to provide product quality. In the supermarket industry, product availability is an important measure of quality. Using U.S. Consumer Price Index microdata to track inventory shortfalls, I find that stores facing more intense competition have fewer shortfalls. Competition from Walmart--the most significant shock to industry market structure in half a century--decreased shortfalls among large chains by about a third. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality. Copyright 2011, Oxford University Press.

Date: 2011
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