Journal
EUROPEAN REVIEW OF AGRICULTURAL ECONOMICS
Volume 40, Issue 1, Pages 1-22Publisher
OXFORD UNIV PRESS
DOI: 10.1093/erae/jbs011
Keywords
nested logit; network effects; retailing; C35; L11; L13; L66; L81
Categories
Funding
- Agricultural and Food Research Initiative, NIFA-USDA [2009-04140]
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Supermarkets face a two-sided demand for shelf space: consumers demand variety and suppliers demand shelf space. We exploit the asymmetric ability of consumers and suppliers to internalise network effects to derive a novel test of network effects in multi-product retail markets. Because consumers fully internalise network effects but suppliers cannot, retail margins rise and wholesale margins fall as variety increases. We test this hypothesis using retail scanner data for a oshopping basket' of items from competing retailers using a structural model of retail variety and vertical pricing. Our results support the existence of positive, two-sided network effects in supermarket retailing.
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