Competition and Product Quality in the Supermarket Industry

52 Pages Posted: 3 Aug 2009 Last revised: 21 Nov 2010

David A. Matsa

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Date Written: November 14, 2010

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 – decreased shortfalls by up to 24 percent. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality.

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

JEL Classification: D40, G31, L15, L81

Suggested Citation

Matsa, David A., Competition and Product Quality in the Supermarket Industry (November 14, 2010). Quarterly Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1440414 or http://dx.doi.org/10.2139/ssrn.1440414

David A. Matsa (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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