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: Suggested Citation