A closer look at the relationship between concentration, prices, and market power in food retail—A monopolistic competition and differentiated products approach

Abstract This article examines the determinants and impacts of rising market concentration in food retail. We argue that the differentiated nature of food retail complicates the common assumption that rising market concentration is evidence of growing market power and rising prices. We provide a theoretical explanation for rising market concentration but relatively unchanging market power and prices. We also provide empirical data on prices, gross margins, profit margins, and demand elasticities to support our hypothesis that rising fixed costs have been the main driver of rising market concentration with little impact on market power and prices.