Pricing Decisions and Local Competition in Grocery Retailing

The objective of this paper is to achieve a better understanding of grocery retailers’ pricing strategies within a competition framework of spatial proximity. In particular, it seeks to analyze the retailers’ action-reaction processes in relation to the specified competitor’s pricing strategy. This paper proposes a first empirical study based on an analysis of a price database for products found in the assortments of equal-format grocery stores located in the same territorial area. It is known that pricing decisions have increased their role within retail management; scholars have detected an intensification of price competition in the distribution sector and the relevance of this issue is evident during periods of economic crisis, when the consumer’s price sensitivity becomes more pronounced. In this paper, pricing strategies in grocery distribution - while considered in both the short and long term - will be understood in a broader sense, from the consumer’s viewpoint, and with reference to strictly local competition. Therefore, this paper attempts to empirically analyze the pricing dynamics of two competing mass market points of sale located in an Italian metropolitan area; specifically, this paper investigates the price signal role of the leading brand name products in the competitive dynamics of local retailers.