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Unraveling the price-concentration relationship: The Role of national distribution centers in Chilean supermarket industry consolidation

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  • Díaz, Fernando
  • Galetovic, Alexander
  • Muñoz, Roberto
  • Tapia, Jocelyn

Abstract

We examine the relationship between prices, costs, concentration, and the intensity of competition in the Chilean supermarket industry during its consolidation process in the late 1990s. This process was characterized by increased concentration, lower prices paid by consumers, and higher levels of competition between firms. We argue that behind this phenomenon lies the adoption of National Distribution Centers by supermarket chains, which represented a technological cost-saving change that intensified competition and reduced profit margins. We develop a simple theoretical model that allows for cost heterogeneity across firm types and provides testable empirical implications regarding the underlying price-concentration relationship. Our results are consistent with a higher degree of price competition in food retailing and can explain the structure of this industry 20 years after the start of its consolidation process.

Suggested Citation

  • Díaz, Fernando & Galetovic, Alexander & Muñoz, Roberto & Tapia, Jocelyn, 2024. "Unraveling the price-concentration relationship: The Role of national distribution centers in Chilean supermarket industry consolidation," Economic Modelling, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323003978
    DOI: 10.1016/j.econmod.2023.106585
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    More about this item

    Keywords

    Price-concentration; National distribution centers; Technological change; Cost heterogeneity; Toughness of competition;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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