Multi-category Competition and Market Power: A Model of Supermarket Pricing
AbstractIn many competitive settings, consumers buy multiple product categories, and some prefer to use a single firm, generating complementary cross-category price effects. To study pricing in supermarkets, an organizational form where these effects are internalized, we develop a multi-category, multi-seller demand model and estimate it using UK consumer data. This class of model is used widely in theoretical analysis of retail pricing. We quantify cross-category pricing effects and find that internalizing them substantially reduces market power. We find that consumers inclined to one-stop (rather than multi-stop) shopping have a greater pro-competitive impact because they generate relatively large cross-category effects.
CitationThomassen, Øyvind, Howard Smith, Stephan Seiler, and Pasquale Schiraldi. 2017. "Multi-category Competition and Market Power: A Model of Supermarket Pricing." American Economic Review, 107 (8): 2308-51. DOI: 10.1257/aer.20160055
- D12 Consumer Economics: Empirical Analysis
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 Oligopoly and Other Imperfect Markets
- L81 Retail and Wholesale Trade; e-Commerce