Retail Market Power in a Shopping Basket Model of Supermarket Competition

Timothy Richards, Stephen F. Hamilton, Koichi Yonezawa

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Supermarket retailers typically operate with relatively low margins, suggesting a highly competitive retail environment. However, despite the fact that consumers purchase an entire shopping basket at a time from supermarkets, this evidence is largely based on models of retail competition with single-category purchases. In this paper, we develop and test an empirical model of retail price competition that explicitly accounts for the effect of demand complementarity among items in consumer shopping baskets. Relative to the case where consumers purchase products with independent demands, we demonstrate that equilibrium prices are higher for all items when retailers take demand-complementarity into account. Our findings indicate that non-price strategies intended to encourage complementarity, such as co-merchandising, strategic shelf-positioning, or featuring complementary goods tend to soften price competition, and lead to higher equilibrium prices.

Original languageEnglish (US)
JournalJournal of Retailing
DOIs
StateAccepted/In press - Jan 1 2018

Fingerprint

Complementarity
Purchase
Shopping
Market power
Supermarkets
Retail market
Equilibrium price
Price competition
Retailers
Merchandising
Retail competition
Margin
Positioning
Complementary goods
Retail
Empirical model
Retail prices

Keywords

  • Complementarity
  • Oligopolies
  • Pricing
  • Retailing
  • Supermarkets

ASJC Scopus subject areas

  • Marketing

Cite this

Retail Market Power in a Shopping Basket Model of Supermarket Competition. / Richards, Timothy; Hamilton, Stephen F.; Yonezawa, Koichi.

In: Journal of Retailing, 01.01.2018.

Research output: Contribution to journalArticle

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