Multi-Category Competition and Market Power: A Model of Supermarket Pricing

63 Pages Posted: 30 May 2017

See all articles by Oyvind Thomassen

Oyvind Thomassen

Seoul National University

Howard W. Smith

University of Oxford - Department of Economics

Stephan Seiler

Imperial College Business School; Centre for Economic Policy Research

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics

Date Written: March 19, 2017

Abstract

In 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.

Keywords: Pricing, Supermarket, Categories, Discrete-Continuous Choice

JEL Classification: L11, L13, L81

Suggested Citation

Thomassen, Oyvind and Smith, Howard W. and Seiler, Stephan and Schiraldi, Pasquale, Multi-Category Competition and Market Power: A Model of Supermarket Pricing (March 19, 2017). American Economic Review, Forthcoming, Stanford University Graduate School of Business Research Paper No. 17-44, Available at SSRN: https://ssrn.com/abstract=2955208 or http://dx.doi.org/10.2139/ssrn.2955208

Oyvind Thomassen (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Howard W. Smith

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Stephan Seiler

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research ( email )

London
United Kingdom

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://sites.google.com/view/schiraldi-pasquale/home

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
504
Abstract Views
2,570
Rank
101,080
PlumX Metrics