Journal
RAND JOURNAL OF ECONOMICS
Volume 38, Issue 1, Pages 43-59Publisher
RAND
DOI: 10.1111/j.1756-2171.2007.tb00043.x
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I present empirical evidence that endogenous fixed costs play a central role in determining the equilibrium structure of the supermarket industry. Using the framework developed in Sutton (1991), 1 construct a model of supermarket competition where escalating investment infirm-level distribution systems is driven by the incentive to produce a greater variety of products in every store. Employing a store-level census and 51 distinct geographic markets, I demonstrate that the supermarket industry is a natural oligopoly in which a small number of firms (between four and six) capture the majority of sales, regardless of market size.
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