Price Dispersion and Strategic Outcomes: An Analysis of the Irish Independent Grocery Sector

JEL Classification K21

Patrick P. Walsh and Ciara Whelan

Department of Economics, Trinity College, Dublin 2, Ireland.

Abstract

This paper empirically analyses price dispersion between brand within product catgories in the Independent grocery sector. The methodology adopted allows us to discriminate between the impact which various structural demand and supply side features have on price dispersion in both traditional and game-theoretic frameworks. Specifically we estimate how differences in the product cycle, sales structure, distribution structure, and downstream retailer power impact patterns of price dispersion while controlling for idiosyncratic product effects. Our results suggest that competitive pricing of brands in product categories, and hence price dispersion, will rise with a slump in the product cycle, fragmentation in the sales structure, greater distribution coverage in outlets, and factors which restrict downstream retailer power.

Acknowledgements

This paper was presented to the Irish Economic Association in April 1997 and to the Department of Economics in Heriot-Watt University in May 1997. We thank all participants for their comments. Special thanks are extended to AC Nielsen Ltd. in Ireland for providing the data which made this research possible.