Multi-Category Competition and Market Power: A Model of Supermarket Pricing
63 Pages Posted: 30 May 2017
Date Written: March 19, 2017
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: Suggested Citation