Market Competition, and Metropolitan-Area Grocery Prices

Abstract

This paper examines the relationship of 1987 retail grocery prices to supermarket sales concentration across 95 U.S. metropolitan areas. The regression model incorporates a large number of population, retail-cost, and retail competition factors and separate prices by type of grocery item. We find that the concentration-price relationship is sensitive to item type: Positive for packaged, branded, dry groceries and unrelated for produce, meat and dairy product prices. As for market rivalry, we find that small grocery stores provide no grocery price competition for supermarkets. However, branded grocery prices are driven down by fast-food places and by rapid price churning, whereas for unbranded foods the presence of warehouse stores places downward pressure on supermarket prices while fast-food presence does not. For the branded-groceries component, we also find prices higher in large, fast-growing, low-income, Eastern cities. We also find that cities where rents, wages and electricity costs are high tend to have high dry grocery prices. However, for the unbranded-products component retail costs are unrelated to prices, and cities in the South have the highest prices.

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