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The New Competition in Retailing

Competition problems occur most often in retailing, since markets will only tend to work imperfectly when there are asymmetries in bargaining power (consumers are small), high transactions costs (consumers are immobile), information asymmetries (consumers are uninformed), or vertical restraints.

The issues typically covered include:

1. Pricing issues (including excessive pricing, discriminatory pricing, predatory pricing, and loss leading);
2. Merger issues (for which market definition is crucial); and
3. Vertical issues (including vertical restraints, differential discounting, and own-brand competition).

In order to analyse these various issues, the following framework is suggested:

1. Identification of competition issues
2. Preliminary analysis of retailing:

• the characteristics of consumers; and
• the dimensions of competition between retailers.

3. Market definition
4 Barriers to entry
5 Competition assessment:

• • market structure and merger issues;
  • pricing issues; and
  • vertical issues