Network externalities in supermarket retailing

Timothy Richards, Stephen F. Hamilton

Research output: Contribution to journalReview article

6 Scopus citations

Abstract

Supermarkets face a two-sided demand for shelf space: consumers demand variety and suppliers demand shelf space. We exploit the asymmetric ability of consumers and suppliers to internalise network effects to derive a novel test of network effects in multi-product retail markets. Because consumers fully internalise network effects but suppliers cannot, retail margins rise and wholesale margins fall as variety increases. We test this hypothesis using retail scanner data for a 'shopping basket' of items from competing retailers using a structural model of retail variety and vertical pricing. Our results support the existence of positive, two-sided network effects in supermarket retailing.

Original languageEnglish (US)
Pages (from-to)1-22
Number of pages22
JournalEuropean Review of Agricultural Economics
Volume40
Issue number1
DOIs
StatePublished - Feb 1 2013

Keywords

  • Nested logit
  • Network effects
  • Retailing

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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