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Competition and Product Quality in the Supermarket Industry

David A. Matsa
Northwestern University - Department of Finance


July 6, 2009


Abstract:     
This paper 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 Wal-Mart, the most significant shock to industry market structure in half a century, decreases shortfalls by up to 24 percent. The risk of customers switching stores appears to provide strong incentives for investments in product quality.

Keywords: product quality, competition, monopoly, big-box, inventory management, stockout

JEL Classifications: D40, G31, L15, L81

Working Paper Series

Date posted: August 03, 2009 ; Last revised: August 13, 2009

Suggested Citation

Matsa, David A., Competition and Product Quality in the Supermarket Industry (July 6, 2009). Available at SSRN: http://ssrn.com/abstract=1440414


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Contact Information

David A. Matsa (Contact Author)
Northwestern University - Department of Finance ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
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