Open AccessPrice convergence in the UK supermarket chains: Evidence from nonlinear cointegration approach
Author(s) -
Kai Yin Woo,
Shu Kam Lee
Publication year - 2018
Publication title -
economics and business letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.197
H-Index - 4
ISSN - 2254-4380
DOI - 10.17811/ebl.7.3.2018.115-125
Subject(s) - cointegration , convergence (economics) , dominance (genetics) , economics , competition (biology) , rank (graph theory) , market power , econometrics , microeconomics , industrial organization , macroeconomics , mathematics , ecology , biochemistry , chemistry , combinatorics , biology , gene , monopoly
Supermarket chain is an important sector of the UK grocery stores and the growing dominance of supermarket chains has brought public concern over exploitation of market power in the UK retail grocery industry. This paper therefore aims to examine the price convergence of the UK supermarket products. Since the cointegrating relationship between supermarket prices may not be exact or linear, we adopt the rank tests for analysis which do not require prior knowledge and specification of the linear or nonlinear functional form. Our results confirm the evidence of the price convergence of all grocery products and then validate the price competition between the UK supermarket chains. Furthermore, a subset of the cointegration relationships exhibits nonlinear long-run price co-movements.