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Price Setting in Online Grocery Markets: The Case of Chocolate

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  • Grein, Theresa
  • Herrmann, Roland

Abstract

Online markets are developing rapidly in many industrialized countries and have already reached a rather mature status for some product categories. This, however, is not the case in the food sector. In Germany, the online food market captured still less than 1 % of total food sales in 2014. Despite this small share of the online market, the segment is clearly increasing and major players on the offline grocery market engage themselves on the online market, too, or they plan to do so. It is intended in this paper to contribute to our knowledge on competitive strategies of multichannel suppliers and pure online traders which are active on this growing market segment. A major element of competitive strategies on the online market for foods is pricing. We concentrate on pricing strategies of multichannel firms and pure online traders on the German online market and present evidence for the product group chocolate. More and quicker price information for consumers will become available with the development of online markets. Theory suggests that buyers’ search costs will be lowered and market efficiency will be improved. With lower search costs, it is expected that price dispersion will be reduced, i.e. markets will tend towards the law of one price for identical goods, and that the price level will decline and adjust rapidly. It may, however, happen that online markets induce new search costs for consumers as the variety of products offered will also increase substantially. It is an empirical question whether the level and the dispersion of prices will actually fall as the online supply of foods grows. The increasing empirical evidence on non-food markets indicates that remarkable differences between various suppliers persist with the growing importance of online markets and prices remain relatively rigid over time. Different explanations for these patterns are offered in the literature including a growing importance of product differentiation and non-price strategies on online and offline markets.

Suggested Citation

  • Grein, Theresa & Herrmann, Roland, 2016. "Price Setting in Online Grocery Markets: The Case of Chocolate," 2016 International European Forum (151st EAAE Seminar), February 15-19, 2016, Innsbruck-Igls, Austria 244457, International European Forum on System Dynamics and Innovation in Food Networks.
    • Handle: RePEc:ags:iefi16:244457
    DOI: 10.22004/ag.econ.244457
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    References listed on IDEAS

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    1. Baylis, Kathy & Perloff, Jeffrey M., 2001. "Price Dispersion on the Internet: Good Firms and Bad Firms," Institute for Research on Labor and Employment, Working Paper Series qt2t0770rn, Institute of Industrial Relations, UC Berkeley.
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    6. Herrmann, Roland & Moser, Anke & Weber, Sascha A., 2009. "Chapter 4: The Case of Germany," Structural Changes in Food Retailing: Six Country Case Studies 60675, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
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    Cited by:

    1. Mkansi, Marcia & Nsakanda, Aaron Luntala, 2021. "Leveraging the physical network of stores in e-grocery order fulfilment for sustainable competitive advantage," Research in Transportation Economics, Elsevier, vol. 87(C).
    2. Fedoseeva, Svetlana & Herrmann, Roland & Nickolaus, Katharina, 2017. "Was the economics of information approach wrong all the way? Evidence from German grocery r(E)tailing," Journal of Business Research, Elsevier, vol. 80(C), pages 63-72.

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    Agribusiness; Demand and Price Analysis;

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