Competition and Product Quality in the Supermarket Industry
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 – decreases shortfalls by about a third. The risk of customers switching stores appears to provide strong incentives for investments in product quality.
Matsa, David A. 2011. Competition and Product Quality in the Supermarket Industry. Quarterly Journal of Economics. 126(3): 1539-1591.