Empirical Analysis of Competitive Interaction in Food Product Categories

This paper provides an overview of recent research on estimating competitive interaction in food product categories. In particular, the focus of this review is on research using scanner data conducted at the disaggregate (e.g., store, chain or local market) level, including empirical studies of vertical (i.e., within-channel) conduct. Studies addressing the competitive interaction on price, as well as non-price variables (e.g., in-store display and feature advertising) are considered. The author first describes the methodologies available for measuring the competitive interaction between firms and then briefly summarizes recent empirical developments. Given the complexity of the interactions that take place in practice, it is argued that much of the richness of actual competitive behavior is lost in aggregate analysis. Competitive interaction is the result of a complex set of variables and influences-demand side factors, market and industry structure, firm "personality", and category characteristics all interact in a complex fashion to determine strategic behavior of retailers and manufacturers.competition, competitive strategy, channel behavior, Agribusiness, Demand and Price Analysis, Industrial Organization,

Strategic Vertical Pricing in the U.S. Butter Market

This article develops a methodology for empirically analyzing vertically strategic interactions in a multi-level supply channel. The model is used to analyze the vertical channel for U.S. butter manufacturing and retailing. Aggregating products to the firm level and using a nonlinear AIDS demand system under alternative strategic pricing assumptions is estimated using full information maximum likelihood (FIML) for seven geographic markets from 1998-2002. The market demand for butter was found to very price elastic. Furthermore, cross price elasticities between private labels and the two large national brands were also very elastic. The selected market structure was one indicating category profit maximization of national brands (separate from private label) at the retail level, Vertical Nash competition in the vertical channel, and Bretrand competition at the manufacturing level. Our results strongly suggest that the retail market for food products is impacted by the underlying vertical structure. The study provides useful measures of imperfect competition in the retail manufacturing sector.Vertical interaction, market structure, strategic pricing, market power, AIDS model, butter., Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Industrial Organization, L13, L22, L66,

The impact of sales promotions on store performance: a structural vector autoregressive (SVAR) approach.

The paper analyses the impact of sales promotions on store performance, in the short and long term, from the retailer’s point of view. Relationships among promoted and regular sales in the hypermarkets of a large-scale retail chain of national importance, are investigated by means of a structural vector autoregressive model (SVAR). Statistically significant effects of sales promotions in the heavy household section on store sales are found in the short-run; these promotions produce additional sales and thus act as an attractive factor. Promotions in textile category, on the contrary, produce an immediate negative effect on net sales. In the long-run, negative statistically significant effects on regular sales are detected when continuative promotions are implemented within perishables’ category.promotional effectiveness, retail promotions, structural VAR, short and long-term effects.

Price Rigidity and Market Power in German Retailing

This paper presents empirical evidence on the interplay important topics of consumer price rigidity and market power in the German food retail industry. In particular, the analysis addresses the causal relationship between market structure - collusion - and pricing behaviour highlighted in the industrial organization literature. Extensive analysis of retail scanner data across beef and pork products reveals considerable differences in price rigidity across store types. Supermarket pricing behaviour is evaluated with respect to all price changes, retail sales actions and price adjustments indicating that food discounters exhibit the highest degree of rigid prices. Retail concentration, as an important explanatory factor of price stickiness is investigated via the analysis of retail market power employing a conjectural variation approach. The analysis of market conduct in the marketing of beef and pork products indicates simultaneous oligopolistic and oligopsonistic behaviour of retail firms. --

Antitrust analysis of supermarkets: global concerns playing out in local markets

This paper reviews the basic components of antitrust analysis for the supermarket industry, including definition of product and geographic markets and the measurement of market power. The analysis of prices and profits in a market structure context remains important, especially in countries such as Australia with very high supermarket concentration. Firm and brand level New Empirical Industrial Organisation models of demand and oligopoly pricing also provide insights for evaluating antitrust claims. Recent research on vertical pricing games and price transmission expand the analysis to market channel pricing issues, including coalescing power by supermarkets and food manufacturers. The issues and approaches explained in this paper are relevant for policy-orientated research on supermarkets worldwide, including Australia.market concentration, market definition, Nash–Bertrand conduct, price–cost margin, price transmission rate, unilateral and coordinated market power, Agribusiness, Industrial Organization,

Sales and Consumer Inventory

Temporary price reductions (sales) are common for many goods and naturally result in large increase in the quantity sold. We explore whether the data support the hypothesis that these increases are, at least partly, due to dynamic consumer behavior: at low prices consumers stockpile for future consumption. This effect, if present, renders standard static demand estimates misleading, which has broad economic implications. We construct a dynamic model of consumer choice, use it to derive testable predictions and test these predictions using two years of scanner data on the purchasing behavior of a panel of households. The results support the existence of household stockpiling behavior and suggest that static demand estimates, which neglect dynamics, may overestimate price sensitiveness by up to a factor of 2 to 6.

Sales and Consumer Inventory

Temporary price reductions (sales) are quite common for many goods and usually result in an increase in the quantity sold. We explore whether the data support the hypothesis that these increases are, at least partly, due to dynamic consumer behavior: at low prices consumers stockpile for future consumption. This effect, if present, has broad implications for interpretation of demand estimates. We construct a dynamic model of consumer choice and use it to derive testable predictions. We test the implications of the model using two years of store-level scanner data and data on the purchases of a panel of households over the same time. The results support the existence of household stockpiling behavior.