nep-agr New Economics Papers
on Agricultural Economics
Issue of 2005‒04‒09
three papers chosen by
Angelo Zago
Universita degli Studi di Verona

  1. Uncertainty in a fisherey management game By Engwerda,Jacob
  2. Supermarkets as a Natural Oligopoly By Ellickson, Paul
  3. Does Sutton Apply to Supermarkets? By Ellickson, Paul

  1. By: Engwerda,Jacob (Tilburg University, Center for Economic Research)
    Abstract: In this paper we analyze the consequences of taking noise into account in a simple twoperson fishery management game. Both a stochastic and deterministic formulation are considered. Compared to the noise-free model it is shown that the used stochastic frameworkhas no implications for the equilibrium actions, whereas in the deterministic formulation as well the number of as the equilibrium actions themselves depend on the model parameters. The various equilibrium actions predicted using the deterministic frameworkseem to be quite plausible.
    JEL: C61 C72 C73
    Date: 2005
  2. By: Ellickson, Paul
    Abstract: This paper uses a model of endogenous sunk cost (ESC) competition to explain the industrial structure of the supermarket industry, where a few powerful chains provide high quality products at low prices. The predictions of this model accord well with the features of the supermarket industry documented here. Using a novel dataset of store level observations, I demonstrate that 1) the same number of high quality firms enter markets of varying sizes and compete side by side for the same consumers and 2) quality increases with the size of the market. In addition to documenting a local structure of competition consistent with the ESC framework, I demonstrate that the choice of quality by rival firms behaves as a strategic complement. This key finding, which is consistent with an ESC model of quality enhancing sunk outlays, eliminates several alternative explanations of concentration in the supermarket industry, including most standard models of cost-reducing investment and product proliferation. These results suggest that the competitive mechanisms sustaining high levels of concentration in the supermarket industry are inherently rivalrous and unlikely to lead to the emergence of a single dominant firm.
    Keywords: endogenous sunk costs, vertical product differentiation, oligopoly, retail, supermarkets, market concentration, dartboard, complementarity
    JEL: L13 L22 L81
    Date: 2005
  3. By: Ellickson, Paul
    Abstract: This paper presents empirical evidence that endogenous sunk costs play a central role in determining the equilibrium structure of the supermarket industry. Using the endogenous sunk cost (ESC) framework developed in Sutton (1991), I construct a model of supermarket competition where escalating investment in firm level distribution systems is driven by the incentive to produce a greater variety of products in every store. Using the observed networks of store and warehouse locations, I identify 51 distinct geographic markets covering nearly the entire United States and empirically verify their relative independence. Employing a dataset consisting of every supermarket operating in these markets, I establish the existence of a lower bound to concentration that remains strictly positive as market size expands. Furthermore, I am able to verify that this non-fragmentation result applies only to firms that have built their own distribution networks, as the model predicts.
    Keywords: endogenous sunk costs, vertical product differentiation, oligopoly, retail, supermarkets, market concentration
    JEL: L13 L22 L81
    Date: 2005

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