Market Consolidation and Pricing Developments in Grocery Retailing: A Case Study

When large retailers merge, there is a concern that a sudden and marked increase in concentration will alter the intensity and nature of price competition to the detriment of consumers. This chapter considers just such a situation in regard to UK grocery retailing, which has witnessed steadily increasing concentration over recent years, advanced by a series of mergers. Specifically, we examine the nature of price competition amongst the major ¡°one-stop-shop¡± retail chains before, during, and after the Safeway/Morrison merger in March 2004.We find the merger offered consumers an immediate windfall benefit ¡ª with average prices falling straight after the merger ¡ª and more intriguingly appears to have led to (or at least is associated with) a marked change in the character of price competition in the market.