Spatial Competition and Price Reporting in Retail Food Markets

Abstract

Spatial competition in retail food markets is examined, with emphasis on the geographic variations in prices among proximate rival firms. The concepts of Löschian, Hotelling-Smithies, and Greenhut-Ohta competition are reviewed, and the conjectural implications in pricing policy noted. Given a geographic distribution of five retail chains for the metropolitan Tucson area, the spatial differentiation in food prices for a comparable market basket is analyzed over a four-week period. Retail Food Price Reporting Systems (RFPRS) information is collected from televised basic cable reports on comparative shopping, a local public service. Retail food pricing patterns are tested for first-order spatial dependence utilizing general spatial autocorrelation indices. It is demonstrated that significant spatial relationships exist in reported market prices and the degree of price dispersion in geographically competitive markets. Price levels are contrasted against the socioeconomic profiles of the consumer population in the search for discriminatory pricing over space. Little or no evidence of short-run average price discrimination is uncovered. Yet, there is statistical evidence that distance between rival chains is positively related to average mill price schedules.