The relationship between price and retail concentration: evidence from the US food industry

This study utilises the product barcode, store and retail real estate data to obtain consistent estimates of the effects of retail market concentration on food prices in the USA. Our disaggregated data allow for an identification strategy that corrects for the endogeneity of concentration in the concentration-price relationship. Findings from an instrumental variables fixed-effects model indicate that prices rise with retail concentration, and that ignoring endogeneity results in a severe downward bias. A simulation analysis finds that a 5 per cent increase in concentration would increase prices by 18 per cent and decrease food consumption by 2-5 per cent. Our findings suggest mergers in the food industry could inadvertently lead to adverse effects.