The Competitive Effects of Superstore Entry: The Role of Product Variety

Abstract

This study empirically examines the impact of Superstore entries on product variety in the United States supermarket industry. By using a rich retail panel from 2006 to 2016 and a data set documenting Superstore locations and opening dates, this study employs a difference-in-differences estimator to compare stores that experience a Superstore entry with those that do not. The results show that affected supermarkets decrease product variety by~3.5~\% in non-food categories following a Superstore entry, while no significant effect is observed for food categories. The findings indicate that the adjustment in variety is associated with the pricing strategy adopted by retailers. Retailers implementing a uniform pricing strategy or regional pricing strategy reduce their product variety at the store level in response to a Superstore entry, while stores employing local pricing do not. These findings highlight the strategic importance of assortment for supermarkets.

Keywords: Variety, Pricing, Market Entry, Ex-post evaluation, Retail sector

JEL Classification: D22, L11, L66, L81, C23