Journal Article

Supermarket Choice and Supermarket Competition in Market Equilibrium

Howard Smith

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 71, issue 1, pages 235-263
Published in print January 2004 | ISSN: 0034-6527
Published online January 2004 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00283
Supermarket Choice and Supermarket Competition in Market Equilibrium

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Multi-store firms are common in the retailing industry. Theory suggests that cross-elasticities between stores of the same firm enhance market power. To evaluate the importance of this effect in the U.K. supermarket industry, we estimate a model of consumer choice and expenditure using three data sources: profit margins for each chain, a survey of consumer choices and a data-set of store characteristics. To permit plausible substitution patterns, the utility model interacts consumer and store characteristics. We measure market power by calculating the effect of merger and demerger on Nash equilibrium prices. Demerger reduces the prices of the largest firms by between 2 and 3.8% depending on local concentration; mergers between the largest firms lead to price increases up to 7.4%.

Keywords: G34; L11; L81

Journal Article.  11160 words.  Illustrated.

Subjects: Mergers and Acquisitions ; Services ; Market Structure, Firm Strategy, and Market Performance

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