Premium
Does Sutton apply to supermarkets?
Author(s) -
Ellickson Paul B.
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2007.tb00043.x
Subject(s) - oligopoly , competition (biology) , incentive , investment (military) , industrial organization , construct (python library) , variety (cybernetics) , business , distribution (mathematics) , microeconomics , market structure , market size , economics , commerce , cournot competition , computer science , ecology , mathematical analysis , programming language , mathematics , artificial intelligence , politics , political science , law , biology
I present empirical evidence that endogenous fixed costs play a central role in determining the equilibrium structure of the supermarket industry. Using the framework developed in Sutton (1991), I construct a model of supermarket competition where escalating investment infirm‐level distribution systems is driven by the incentive to produce a greater variety of products in every store. Employing a store‐level census and 51 distinct geographic markets, I demonstrate that the supermarket industry is a natural oligopoly in which a small number of firms (between four and six)capture the majority of sales, regardless of market size.