Retailing, one of the largest sectors in the US economy, is characterized by strong competition from independent grocers, supermarket chains, convenience stores, speciality markets, discounters, hypermarkets, and other formats. The rise in household income levels, changing lifestyle patterns, and the ageing baby boomers have created the necessity and requirement for several varieties of grocery formats. Among the various formats, the large grocery retailers account for more than 50 percent of the US grocery retail market. The dominance of these large grocery retailers is much higher at regional levels and accounts for more than 70 percent.
Given this backdrop, it is often argued that the market power of these large grocery retailers has significantly increased as opposed to the manufacturers. The increased concentration along with their growing buyer power has heightened the concerns of many about the retailers' ability to influence prices charged to the consumers and prices paid to the suppliers. Hence, understanding the retailers' pricing strategies is critical for many reasons. Analyzing market mechanisms that establish prices (food products) has been one of the goals of microeconomics (Blinder et al., 1998). Economists often describe price as the primary mechanism for "efficient resource allocation". Thus, pricing strategies of firms are essential in economic analysis of market performance. In addition, it helps marketers to address three important questions—what to produce, how much to produce and for whom to produce (Muller et al., 2006). |
