Multiproduct retailing and consumer shopping behavior: The role of shopping costs |
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| Institution: | 1. Universidad del Rosario, Calle 12C 4-59, Bogotá, Colombia;2. Université Paris Dauphine, LEDa, UMR CNRS [8007], UMR IRD [260], PSL, Place du Maréchal de Lattre de Tassigny, 75016 Paris, France;1. Toulouse School of Economics, Esplanade de l’Université 1, Toulouse 31080, France;3. Department of Economics and Business, University of Catania, C.so Italia 55, Catania 95129, Italy;4. Department of Economics and Related Studies, University of York, Heslington, York YO10 5DD, UK;5. Department of Economics/NIPE, University of Minho, Campus de Gualtar, Braga 4710-057, Portugal;6. Department of Economics, University of Bergen, Norway;1. Centre for Competition Policy, University of East Anglia, Norwich NR4 7TJ, UK;2. School of Economics, University of East Anglia, Norwich NR4 7TJ, UK;3. Norwich Business School, University of East Anglia, Norwich NR4 7TJ, UK;4. Comtech Systems Inc., Victoria, BC, Canada;1. Sloan School of Management, Center for Energy and Environmental Policy Research, MIT, USA;2. NBER, USA;3. Carleton University, Canada;4. FGV EPGE, Brazil;1. Department of Economics, Università Bocconi, Italy;2. CSEF, Italy;3. CEPR, UK;4. ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics, Spain |
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| Abstract: | We empirically examine the role of shopping costs in consumer shopping behavior in a context of competing differentiated supermarkets that supply similar product lines. We develop and estimate a model of demand in which consumers can purchase multiple products from multiple stores in the same week, and incur transaction costs of dealing with supermarkets. We show that a similar model without shopping costs predicts a larger proportion of multistop shoppers and overestimates own-price elasticities and product markups. Further, we use our model along with a model of competition between supermarkets to study two practices that are commonly used by supermarkets: product delisting and loss-leader pricing. We show that the presence of shopping costs makes product delisting less profitable whereas it makes loss-leader pricing more profitable compared to a context in which consumers do not incur shopping costs. |
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