American Economic Review Vol. 107 No. 8 2017

Multi-Category Competition and Market Power: A Model of Supermarket Pricing

Øyvind Thomassen¹; Howard Smith²; Stephan Seiler³; Pasquale Schiraldi⁴

¹ Department of Economics, Seoul National University, Seoul, 08826 (email: ) · ² Department of Economics, Oxford University, Oxford, OX1 3UQ, and IFS, and CEPR (email: ) · ³ Graduate School of Business, Stanford University, 655 Knight Way, Stanford, CA 94305 (email: ) · ⁴ London School of Economics, Houghton Street, London, WC2A 2AE (email: )

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.

DOI

10.1257/aer.20160055

Volume

107

Issue

8

Pages

2308-2351

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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