Structure and Food Price Inflation
-
Ilya Rahkovsky
Abstract
We pair Nielsen TDLinx data, 2004–2014, with Consumer Price Index data to investigate how changes in food retail market structure drive food price inflation. We find, in corroboration with much of the evidence to date, that market concentration is positively and significantly associated with higher food prices. We find the same to be true for store format concentration, or the homogeneity of food markets. As the market shares, or penetration, of supercenters, warehouse stores, limited assortment stores, and superettes increase at expense of traditional supermarkets, food price inflation decreases.
Correction Note
Correction added after online publication February 28, 2017: The views expressed in this paper are those of the authors and may not be attributed to USDA or ERS.
References
Ashenfelter, O., and D. Hosken. 2008. The Effect of Mergers on Consumer Prices: Evidence from Five Selected Case Studies. Washington, DC: National Bureau of Economic Research .10.3386/w13859Search in Google Scholar
Bils, M., and P.J. Klenow. 2004. “Some Evidence on the Importance of Sticky Prices.” Journal of Political Economy 112(5): 947–985.10.1086/422559Search in Google Scholar
Boatwright, P., S. Dhar, and P.E. Rossi. 2004. “The Role of Retail Competition, Demographics and Account Retail Strategy as Drivers of Promotional Sensitivity.” Quantitative Marketing and Economics 2(2): 169–190.10.1023/B:QMEC.0000027777.29554.8bSearch in Google Scholar
Bonanno, A., and R.A. Lopez. 2009. “Competition Effects of Supermarket Services.” American Journal of Agricultural Economics 91(3): 555–568.10.1111/j.1467-8276.2009.01255.xSearch in Google Scholar
Bresnahan, T.F., and P.C. Reiss. 1991. “Entry and Competition in Concentrated Markets.” Journal of Political Economy 99(5): 977–1009.10.1086/261786Search in Google Scholar
Çakır, M. and Nolan, J. 2015. “Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector.” Journal of Agricultural and Resource Economics 40(2): 203–219.Search in Google Scholar
Campbell, J.R., and B. Eden. 2014. “Rigid Prices: Evidence from US Scanner Data.” International Economic Review 55(2): 423–442.10.1111/iere.12055Search in Google Scholar
Carpenter, J.M., and M. Moore. 2006. “Consumer Demographics, Store Attributes, and Retail Format Choice in the US Grocery Market.” International Journal of Retail & Distribution Management 34(6): 434–452.10.1108/09590550610667038Search in Google Scholar
Christiano, L.J., M.S. Eichenbaum, and M. Trabandt. 2015. “Understanding the Great Recession.” American Economic Journal: Macroeconomics 7(1): 110–167.10.3386/w20040Search in Google Scholar
Clarke, R., and S.W. Davies. 1982. “Market Structure and Price-Cost Margins.” Economica 49(195): 277–287.10.2307/2553628Search in Google Scholar
Cleary, R.L., and R.A. Lopez. 2013. “Supermarket Responses to Wal-Mart Supercenter Expansion: A Structural Approach.” Empirical Economics 47(3): 1–21.10.1007/s00181-013-0767-5Search in Google Scholar
Collins, N.R., and L.E. Preston. 1966. “Concentration and Price-Cost Margins in Food Manufacturing Industries.” The Journal of Industrial Economics 14(3): 226–242.10.2307/2097552Search in Google Scholar
Connor, J.M., and E.B. Peterson. 1992. “Market-Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products.” The Journal of Industrial Economics 40(2): 157–171.10.2307/2950507Search in Google Scholar
Cowling, K., and M. Waterson. 1976. “Price-Cost Margins and Market Structure.” Economica 43(171): 267–274.10.2307/2553125Search in Google Scholar
Datta, S., and K. Sudhir. 2013. “Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety.” Quantitative Marketing and Economics 11(1): 1–34.10.1007/s11129-012-9131-xSearch in Google Scholar
Davis, D.E. 2010. “Prices, Promotions, and Supermarket Mergers.” Journal of Agricultural & Food Industrial Organization 8(1).10.2202/1542-0485.1312Search in Google Scholar
Del Negro, M., M.P. Giannoni, and F. Schorfheide. 2015. “Inflation in the Great Recession and New Keynesian Models.” American Economic Journal: Macroeconomics 7(1): 168–196.10.3386/w20055Search in Google Scholar
Dewey, D. 1979. “Information, Entry, and Welfare: The Case for Collusion.” The American Economic Review 69(4): 587–594.Search in Google Scholar
Digal, L.N. and Ahmadi–Esfahani, F.Z. 2002. “Market Power Analysis in the Retail Food Industry: A Survey of Methods.” Australian Journal of Agricultural and Resource Economics 46(4): 559–584.10.1111/1467-8489.00193Search in Google Scholar
Dong, D., and H. Stewart. 2012. “Modeling a Household’s Choice among Food Store Types.” American Journal of Agricultural Economics 94(3): 702–717.10.1093/ajae/aas013Search in Google Scholar
Ellickson, P.B. 2012. “Supermarkets as a Natural Oligopoly.” Economic Inquiry 51(2): 1142–1154.10.1111/j.1465-7295.2011.00432.xSearch in Google Scholar
Ellickson, P.B., and S. Misra. 2008. “Supermarket Pricing Strategies.” Marketing Science 27(5): 811–828.10.1287/mksc.1080.0398Search in Google Scholar
Feuerstein, S. 2005. “Collusion in Industrial Economics—a Survey.” Journal of Industry, Competition and Trade 5(3/4): 163–198.10.1007/s10842-005-4868-5Search in Google Scholar
Frazao, E., M. Andrews, D. Smallwood, and M. Prell. 2007. “Food Spending Patterns of Low-Income Households.” Economics Information Bulletin of USDA 29(4).Search in Google Scholar
Gauri, D.K., M. Trivedi, and D. Grewal. 2008. “Understanding the Determinants of Retail Strategy: An Empirical Analysis.” Journal of Retailing 84(3): 256–267.10.1016/j.jretai.2008.06.004Search in Google Scholar
Gonzalez-Benito, O., P.A. Munoz-Gallego, and P.K. Kopalle. 2005. “Asymmetric Competition in Retail Store Formats: Evaluating Inter-And Intra-Format Spatial Effects.” Journal of Retailing 81(1): 59–73.10.1016/j.jretai.2005.01.004Search in Google Scholar
Handbury, J., and D.E. Weinstein. 2014. “Goods Prices and Availability in Cities.” The Review of Economic Studies 82(1): 258-296.10.3386/w17067Search in Google Scholar
Hausman, J. and Leibtag, E. 2007. “Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal‐Mart. Journal of Applied Econometrics 22(7): 1157–1177.10.1002/jae.994Search in Google Scholar
Hosken, D., and D. Reiffen. 2004. “Patterns of Retail Price Variation.” RAND Journal of Economics 35(1): 128–146.10.2307/1593733Search in Google Scholar
Hovhannisyan, V., and B.W. Gould. 2012. “A Structural Model of the Analysis of Retail Market Power: The Case of Fluid Milk.” American Journal of Agricultural Economics 94(1): 67–79.10.1093/ajae/aar124Search in Google Scholar
Kim, B.-D., M. Shi, and K. Srinivasan. 2001. “Reward Programs and Tacit Collusion.” Marketing Science 20(2): 99–120.10.1287/mksc.20.2.99.10191Search in Google Scholar
Lal, R., and R. Rao. 1997. “Supermarket Competition: The Case of Every Day Low Pricing.” Marketing Science 16(1): 60–80.10.1287/mksc.16.1.60Search in Google Scholar
Lamm, R.M. 1981. “Prices and Concentration in the Food Retailing Industry.” The Journal of Industrial Economics 30(1): 67–78.10.2307/2098087Search in Google Scholar
Major, M. 2013. PG Aisle Chatter. Supermarkets Emerge as Grocery Store Leaders.Search in Google Scholar
Marion, B.W., W.F. Mueller, R.W. Cotterill, F.E. Geithman, and J.R. Schmelzer. 1979. “The Price and Profit Performance of Leading Food Chains.” American Journal of Agricultural Economics 61(3): 420–433.10.2307/1239428Search in Google Scholar
Marion, B.W. 1998. “Competition in Grocery Retailing: The Impact of a New Strategic Group on BLS Price Increases.” Review of Industrial Organization 13(4): 381–399.10.1023/A:1007748610511Search in Google Scholar
Newmark, C.M. 1990. “A New Test of the Price-Concentration Relationship in Grocery Retailing.” Economics Letters 33(4): 369–373.10.1016/0165-1765(90)90090-NSearch in Google Scholar
Martens, B.J. 2008. “The Effect of Entry by Wal-Mart Supercenters on Retail Grocery Concentration.” Journal of Food Distribution Research 39(3): 13–28.Search in Google Scholar
Ploeg, M.V., V. Breneman, T. Farrigan, K. Hamrick, D. Hopkins, P. Kaufman, B.-H. Lin, T.A. Mark Nord, R.W. Smith, K. Kinnison, C. Olander, A. Singh, and E. Tuckermanty. (2009).Administrative Publication AD-036 Access to Affordable and Nutritious Food—Measuring and Understanding Food Deserts and Their Consequences: Report to Congress.Search in Google Scholar
Scherer, F.M. 2015. “The Federal Trade Commission, Oligopoly, and Shared Monopoly.” Review of Industrial Organization 46(1): 5–23.10.1007/s11151-014-9425-0Search in Google Scholar
Seiders, K., C. Simonides, and D.J. Tigert. 2000. “The Impact of Supercenters on Traditional Food Retailers in Four Markets.” International Journal of Retail & Distribution Management 28(4/5): 181–193.10.1108/09590550010319931Search in Google Scholar
Service, U.E.R. 2015. Food Markets and Prices Topic Page Available At:.Search in Google Scholar
Sexton, R.J. 2000. “Industrialization and Consolidation in the US Food Sector: Implications for Competition and Welfare.” American Journal of Agricultural Economics 82(5): 1087–1104.10.1111/0002-9092.00106Search in Google Scholar
Shaked, A., and J. Sutton. 1982. “Relaxing Price Competition through Product Differentiation.” The Review of Economic Studies 49(1): 3–13.10.2307/2297136Search in Google Scholar
Staus, A. 2009. “Determinants of Store Type Choice in the Food Market for Fruits and Vegetables.” International Journal of Arts and Sciences 3(2): 138–174.Search in Google Scholar
Stiegert, K.W., and T. Sharkey. 2007. “Food Pricing, Competition, and the Emerging Supercenter Format.” Agribusiness 23(3): 295–312.10.1002/agr.20125Search in Google Scholar
USDA Economic Research Service. Retail Trends. 2016, https://www.ers.usda.gov/topics/food-markets-prices/retailing-wholesaling/retail-trends/.Search in Google Scholar
Weaver, R.D., Chattin, P. and Banerjee, A. 1989. “Market Structure and the Dynamics of Retail Food Prices.” Northeastern Journal of Agricultural and Resource Economics 18(2):160–170.10.1017/S0899367X00002026Search in Google Scholar
Wood, S. 2013. “Revisiting the US Food Retail Consolidation Wave: Regulation, Market Power and Spatial Outcomes.” Journal of Economic Geography 13(2): 299–326.10.1093/jeg/lbs047Search in Google Scholar
Yu, C.C., and J.M. Connor. 2002. “The Price‐Concentration Relationship in Grocery Retailing: Retesting Newmark.” Agribusiness 18(4): 413–426.10.1002/agr.10028Search in Google Scholar
Zielke, S. 2010. “How Price Image Dimensions Influence Shopping Intentions for Different Store Formats.” European Journal of Marketing 44(6): 748–770.10.1108/03090561011032702Search in Google Scholar
Appendix
A Annual Sales Categories
| TDLinx Category | Store-Level Annual Sales Range | Frequency (Percent of Total Stores) |
|---|---|---|
| 1 | $1 to $500,000 | 340 (0.05) |
| 2 | $500,001 to $1,000,000 | 14,039 (1.87) |
| 3 | $1,000,001 to $1,500,000 | 148,337 (19.76) |
| 4 | $1,500,001 to $2,000,000 | 141,189 (18.81) |
| 5 | $2,000,001 to $4,000,000 | 235,652 (31.39) |
| 6 | $4,000,001 to $6,000,000 | 66,517 (8.86) |
| 7 | $6,000,001 to $8,000,000 | 31,340 (4.19) |
| 8 | $8,000,001 to $12,000,000 | 22,309 (2.97) |
| 9 | $12,000,001 to $16,000,000 | 14,776 (1.97) |
| 10 | $16,000,001 to $20,000,000 | 14,334 (1.91) |
| 11 | $20,000,001 to $25,000,000 | 16,356 (2.18) |
| 12 | $25,000,001 to $30,000,000 | 11,412 (1.52) |
| 13 | $30,000,001 to $35,000,000 | 6,564 (0.87) |
| 14 | $35,000,001 to $40,000,000 | 6,671 (0.89) |
| 15 | $40,000,001 to $45,000,000 | 4,410 (0.59) |
| 16 | $45,000,001 to $50,000,000 | 3,499 (0.47) |
| 17 | $50,000,001 to $75,000,000 | 8,160 (1.09) |
| 18 | $75,000,001 to $100,000,000 | 1,986 (0.26) |
| 19 | $100,000,001 and up | 2,782 (0.37) |
Source: Nielsen TDLinx, 2004–2014.
B Summary Statistics for Store Count Shares, by Format
| Chain Supermarket Store Count Share | Avg. Across All Years (%) | 11.89 | 2.79 | 6.21 (Detroit) | 17.22 (Washington) |
| Percent Change, 2004–2014 | –28.65 | 11.65 | –37.68 (Detroit) | 21.36 (Pittsburgh) | |
| Supercenter Store Count Share | Avg. Across All Years (%) | 1.57 | 1.36 | 0.0 (Honolulu) | 3.49 (Phoenix) |
| Percent Change, 2004–2014 | 234.18 | 453.04 | 15.19 (Portland) | 2418.19 (Los Angeles) | |
| Club Store Count Share | Avg. Across All Years (%) | 0.91 | 0.49 | 0.49 (Houston) | 1.62 (Honolulu) |
| Percent Change, 2004–2014 | –7.42 | 14.62 | –12.14 (San Diego) | 46.24 (Pittsburgh) | |
| Convenience Store Count Share | Avg. Across All Years (%) | 68.24 | 7.65 | 56.86 (Los Angeles) | 78.33 (Houston) |
| Percent Change, 2004–2014 | –7.42 | 14.62 | –7.58 (Philadelphia) | 5.39 (Portland) | |
| Dollar Store Count Share | Avg. Across All Years (%) | 3.53 | 4.63 | 0.04 (Honolulu) | 7.23 (Pittsburgh) |
| Percent Change, 2004–2014 | 30.54 | 33.86 | 14.45 (Kansas City) | 263.10 (Seattle) | |
| Independent Supermarket Store Count Share | Avg. Across All Years (%) | 2.50 | 1.31 | 0.64 (Phoenix) | 5.89 (Detroit) |
| Percent Change, 2004–2014 | 54.94 | 61.94 | –72.26 (Pittsburgh) | 36.68 (Miami) |
© 2018 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Invited Article
- Alternative Policy Responses to Increased Use of Formula Pricing
- Articles
- Farm Gate Prices for Non-Varietal Wine in Argentina: A Multilevel Comparison of the Prices Paid by Cooperatives and Investor-Oriented Firms
- Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications
- Structure and Food Price Inflation
- Do Geographical Indications Really Increase Trade? A Conceptual Framework and Empirics
- Using Local Information to Improve Short-Run Corn Price Forecasts
Articles in the same Issue
- Invited Article
- Alternative Policy Responses to Increased Use of Formula Pricing
- Articles
- Farm Gate Prices for Non-Varietal Wine in Argentina: A Multilevel Comparison of the Prices Paid by Cooperatives and Investor-Oriented Firms
- Spatial Pricing in Uncontested Procurement Markets: Regulatory Implications
- Structure and Food Price Inflation
- Do Geographical Indications Really Increase Trade? A Conceptual Framework and Empirics
- Using Local Information to Improve Short-Run Corn Price Forecasts
