Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing

80 Pages Posted: 16 Jul 2018

See all articles by Elena Argentesi

Elena Argentesi

University of Bologna - Department of Economics

Paolo Buccirossi

Independent

Roberto Cervone

Independent

Tomaso Duso

German Institute for Economic Research (DIW Berlin); TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization

Alessia Marrazzo

Lear - Laboratory of Economics, Antitrust, Regulation

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Date Written: May 14, 2018

Abstract

Assortment decisions are key strategic instruments for firms responding to local market conditions. We assess this claim by studying the effect of a national merger between two large Dutch supermarket chains on prices and on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables when defining our control group through a matching procedure. We show that the local change in competitive conditions due to the merger did not affect individual products’ prices but it led the merging parties to reposition their assortment and increase average category prices. While the low-variety and low-price target’s stores reduced the depth of their assortment when in direct competition with the acquirer’s stores, the latter increased their product variety. By analyzing the effect of the merger on category prices, we find that the target most likely dropped high priced products, while the acquirer added more of them. Thus, the merging firms reposition their product offerings in order to avoid cannibalization and lessen local competition. Further, we show that other dimensions of heterogeneity, such as market concentration, whether a divestiture was imposed by the Dutch competition authority, and the re-branding strategy of the target stores, are important for explaining the post-merger dynamics. A simple theoretical model of local-market variety competition explains most of our findings.

Keywords: variety, assortment, mergers, ex-post evaluation, retail sector, supermarkets, grocery

JEL Classification: L100, L410, L660, L810, D220, K210, C230

Suggested Citation

Argentesi, Elena and Buccirossi, Paolo and Cervone, Roberto and Duso, Tomaso and Marrazzo, Alessia, Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing (May 14, 2018). CESifo Working Paper Series No. 7035. Available at SSRN: https://ssrn.com/abstract=3206616

Elena Argentesi

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, BO 40141
Italy
+39 051 209 8661 (Phone)
+39 051 209 8040 (Fax)

HOME PAGE: http://www2.dse.unibo.it/argentes/

Paolo Buccirossi

Independent

No Address Available

Roberto Cervone

Independent

No Address Available

Tomaso Duso (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization ( email )

Berlin, 10585
Germany

Alessia Marrazzo

Lear - Laboratory of Economics, Antitrust, Regulation

Via di Monserrato, 48
Rome, 00186
Italy

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