Journal
AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS
Volume 88, Issue 3, Pages 710-726Publisher
BLACKWELL PUBLISHING
DOI: 10.1111/j.1467-8276.2006.00890.x
Keywords
game theory; nested CES; price competition; retailing; variety
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Recent theoretical models of retail competition suggest that product heterogeneity is critical to retail price and variety strategies. This article provides empirical evidence on supermarket retailers' price and variety strategies using a nested constant elasticity of substitution (NCES) modeling framework. The model is estimated using chain-level scanner data for four major grocery chains in a large, urban West Coast market. The results show that retailers compete for market share using both price and variety. While they all tend to follow moderately cooperative pricing strategies, the extent to which they follow cooperative strategies in variety is less homogeneous.
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