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Network externalities in supermarket retailing

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  • Timothy Richards
  • Stephen F. Hamilton

Abstract

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 ‘shopping 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. , Oxford University Press.

Suggested Citation

  • Timothy Richards & Stephen F. Hamilton, 2013. "Network externalities in supermarket retailing," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 40(1), pages 1-22, February.
    • Handle: RePEc:oup:erevae:v:40:y:2013:i:1:p:1-22
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    File URL: http://hdl.handle.net/10.1093/erae/jbs011
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    Cited by:

    1. Ian M. Sheldon, 2021. "Reflections on a Career as an Industrial Organization and International Economist," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 468-499, June.
    2. Castellari, Elena & Moro, Daniele & Platoni, Silvia & Sckokai, Paolo, 2018. "Retailers’ strategies and food price dynamics: Evidence from dairy scanner data," Food Policy, Elsevier, vol. 74(C), pages 212-224.
    3. Metin Çakır & Xiangwen Kong & Clare Cho & Alexander Stevens, 2020. "Rural Food Retailing and Independent Grocery Retailer Exits," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1352-1367, October.
    4. Allender, William J. & Richards, Timothy J., 2009. "Measures of Brand Loyalty," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49536, Agricultural and Applied Economics Association.
    5. Richards, Timothy J. & Hamilton, Stephen F., 2018. "Food waste in the sharing economy," Food Policy, Elsevier, vol. 75(C), pages 109-123.

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