Retail Market Power in a Shopping Basket Model of Supermarket Competition

Abstract

Supermarket consumers typically purchase more than one item at a time. Retail prices, in turn, are likely to depend on demand relationships between multiple categories of goods in consumers' shopping baskets. In this paper, we develop a model of retail price competition that explicitly models the e¤ect of complementary demand relationships between products that appear in consumer shopping baskets. We derive inferences for retail market power when shopping baskets contain products from complementary categories and compare outcomes with the predictions derived from conventional models that assume consumers make discrete choices among independent product categories. Our …ndings reveal that cross-category product complementarity in consumer shopping baskets facilitates substantially greater retail market power relative to the benchmark case of discrete choice over independent goods.

Market power and bargaining in agrifood markets: A review of emerging topics and tools

“…This model allows for cross relationships between purchases of different items in the same shopping basket and across stores. Richards, Hamilton, and Yonezawa () use the MVL to study how cmplementarity in purchases across food categories (milk, cereal, carbonated soft drinks, and salty snacks) and retailers affects prices. The authors conclude that accounting for purchase complementarity leads to higher equilibrium prices (that is, higher market power).…”

Complementarity and bargaining power

“…Rhodes (2015) and Smith and Thomassen (2012) argue that internalizing crossproduct pricing e¤ects on the intra-retailer margin with complementarity leads to lower retail prices as retailers have an incentive to drive volume rather than margin. On the other hand, Richards and Hamilton (2016) show that complementarity on the inter-retailer margin is associated with anti-competitive e¤ects and is a source of market power for retailers. However, none of these studies focus on vertical relationships between multi-product retailers and manufacturers.…”

Mercado de vizinhança ou atacarejo para consumidores de baixa renda em regiões periféricas

“…O Atacarejo é um formato de supermercado que mescla o atacado com o supermercado e vem crescendo bastante (FGV, 2011). Supermercados operam com margens baixas (Richards et al, 2018), portanto um melhor entendimento das preferências do seu consumidor, orientará os supermercadistas na criação de uma estratégia de marketing eficaz (Kotler & Keller, 2014). Os supermercados podem, assim, ajustar seus produtos para otimizar as vendas de negócios (Kiboro, et al, 2017).…”

“…Ainda que exista a pre-concepção que os consumidores de baixa renda valorizam mais extraordinariamente o preço -o que tem levado a expansão das redes de baixo preço (como o Dia, por exemplo) -Mercado de vizinhança ou atacarejo para consumidores de baixa renda em regiões periféricas 129 os nossos achados levam a concepção de novas estratégias de crescimento, talvez seguindo o modelo de crescimento que tem vindo a emergir na Europa e EUA baseado em lojas mais pequenas em formatos de conveniência. A contribuição para a reconcepção das estratégias das redes supermercadistas é relevante dada a forte intensidade competitiva existente no varejo (Hosken et al, 2018;Richards et al, 2018).…”