Competition and Product Quality in the Supermarket Industry

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

Date Written: November 14, 2010


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: or

David A. Matsa (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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