Publisher:
Northwestern University, Center for the Study of Industrial Organization (CSIO), Evanston, IL
Abstract:
This paper analyzes the effect of competition on a supermarket firm's incentive to provide product quality. In the supermarket industry, product availability is an important measure of quality. Using U.S. consumer price index microdata to track inventory shortfalls, I find that stores facing more intense competition have fewer shortfalls. Competition from Wal-Mart - the most significant shock to industry market structure in half a century - decreased shortfalls by up to 24 percent. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality.
