Supermarkets: Price Competition

By using a sample of 108 products across 118 supermarket stores, we study price competition among supermarkets. The study uses a modified version of the Staples dispute to define the estimation equations. We also include other statistical models to analyze price competition among supermarkets. The study does include three ways of measuring the relevant market. First, we define a geographic market in which all supermarkets included in a 5 kilometer radius are competing with the pivot store (the store that we have information on prices). This radius is valid for the three largest cities in Mexico (Mexico, Guadalajara and Monterrey). For the rest of the cities we consider a radius of 8 km. In a second approach we define two circles for all pivot stores in the country. In a first circle we include all stores within a 5 km distance from the pivot store. In a second circle we include all stores located between 5 and 8 kilometers from the pivot store. In a third approach we consider the municipality as the geographical market. We find that supermarket chains have different pricing policies that vary according to the number and identity of rivals. We also find that Walmart does not compete strongly in prices. In fact, in those markets in which the number of Walmart stores increases, the rivals tend to increase prices. We also find that stores fix lower prices whenever there are more chains in the relevant market.