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Spatial Competition in the French Supermarket Industry

Stéphane Turolla
Annals of Economics and Statistics
No. 121/122 (June 2016), pp. 213-259
Published by: GENES on behalf of ADRES
DOI: 10.15609/annaeconstat2009.121-122.213
Stable URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.121-122.213
Page Count: 47
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Spatial Competition in the French Supermarket Industry
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Abstract

This paper challenges the conventional wisdom of a competitive grocery retail sector in France. To measure the intensity of competition in this sector, I develop a structural model of spatial competition that accounts for (i) market geography on consumers' preferences, and (ii) differences in their shopping list. The demand estimates are used to recover stores' price-cost margin under alternative pricing strategies. I select the best pricing model by applying non-nested tests and show that retailers noticeably distort their offer in highly concentrated markets. Retail competition in the French supermarket industry appears to be highly localized in that margins are very sensitive to the presence of a competitor within a few kilometers. Finally, I perform counterfactual experiments to quantify the expected gain of an additional store on consumer welfare and retail prices. JEL: C35, L13, L81. / KEY WORDS: Spatial Competition, Structural Model, Discrete Choice Model, Differentiated Products, Supermarket Industry.

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