Spatial Competition in the French Supermarket Industry

This papers develops a structural model of spatial competition to analyze the competition intensity among large grocery stores at geographical market level. The model is estimated for a metropolitan area of South of France and uses a cross-sectional household survey containing detailed information on stores visited for the main food product categories. Using estimates of demand parameters and assuming a particular pricing rule, we recover both stores’ marginal cost and margin. The results point out that on the whole retailers exert a significant local monopoly power due to important differentiation forces, especially for the hypermarket format. We then perform counterfactual policy simulations based on propositions formulated by the Competition Authority that aim to restore effective competition in this industry. We show that imposing a hypermarket divestiture to a dominant retailer is always beneficial to consumers whatever the purchaser identity