Imperfect competition in retailing

Retailers usually sell a large number of products to consumers who have limited information about prices and product availability. The prevalence of search costs and shopping costs leads to consumers’ “one-stop shopping” behaviour. Retailers’ pricing strategies are thus complex and include various promotional activities. Competition within the retail industry is heterogeneous across retail sectors and formats. Within each sector, retailers are usually differentiated along multiple dimensions, including store size and location, product variety and quality, price positioning, and the range of services offered. The variety of competitive situations in the retail sector is also reflected in the market entry strategies of retailers, influenced by the opposing forces of aggregation and competition, which reflect the different types of externalities between stores. In this entry we analyse competition among the various retail formats. We discuss the shortcomings of concentration estimates in the retail sector. Finally, we analyse market power in the supply chain.