Competition in Food Retailing

Abstract

N THIS paper we will attempt to specify the nature of competition among food retailers in local markets (submarkets. This is an important problem because it is impossible to predict all the relevant consequences of various practices and forms of organization in food production and distribution without knowledge of the nature of competition in retail submarkets. Our point of departure must be the recognition that in retail markets our base line or referent system cannot be pure competition. Because each seller is at least spatially differentiated from all other sellers, every retailer has some degree of monopoly power. In other than small and isolated communities, the inevitable spatial monopoly element in food retailing is of a degree such that the submarket should be described as monopolistic competition or free competition. That is, the seller is indeed a price maker, but his power over price is sharply limited by the existence and potential existence of other sellers.1 These characteristics of retail markets have long been recognized and are no longer points at issue. The issues at present hinge on whether food retail markets tend towards oligopoly or whether they remain essentially freely competitive albeit with possibly serious imperfections. Since these two possible cases require quite different theoretical and policy treatments, it is essential that we attempt to resolve this issue first. Out of our discussion of the possibility of oligopoly, the nature of competition in these markets will emerge. The probably role of large chain stores in these markets will be discussed, and finally the apparent impact of existing public policy on competition in food retail markets will be assessed. By oligopoly we shall mean competition among a few sellers in which at least a quasi agreement on price is reached and maintained for a meaningful time period.2 This is the most common definition of oligopoly. It is,