Multi-category Competition and Market Power: A Model of Supermarket Pricing
Øyvind Thomassen, Howard Smith, Stephan Seiler, Pasquale Schiraldi
American Economic Review · 2017 · Volume 107 · Issue 8
Abstract
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
Consumer Economics: Empirical Analysis, Production, Pricing, and Market Structure, Size Distribution of Firms, Oligopoly and Other Imperfect Markets, Retail and Wholesale Trade, e-Commerce
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