Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior

Jorge Florez-Acosta, Daniel Herrera-Araujo

Research output: Working paper

Abstract

This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers’probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.
Original languageEnglish (US)
Volume2017-16
StatePublished - 2017

Publication series

NamePSE Working Papers
PublisherParis School of Economics
No.2017-16

Fingerprint

Shopping behavior
Buyer power
Retailing
Delisting
Shopping
Supermarkets
Costs
Purchase
Sourcing
Retailers
Suppliers
Grocery
Household
Grocery retailing
Store loyalty
Transaction costs
Vertical restraints
Scanner data

Cite this

@techreport{ff15ef62c40b4076abde13f29fe5acbd,
title = "Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior",
abstract = "This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers’probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.",
author = "Jorge Florez-Acosta and Daniel Herrera-Araujo",
year = "2017",
language = "English (US)",
volume = "2017-16",
series = "PSE Working Papers",
publisher = "Paris School of Economics",
number = "2017-16",
type = "WorkingPaper",
institution = "Paris School of Economics",

}

Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior. / Florez-Acosta, Jorge; Herrera-Araujo, Daniel.

2017. (PSE Working Papers; No. 2017-16).

Research output: Working paper

TY - UNPB

T1 - Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior

AU - Florez-Acosta, Jorge

AU - Herrera-Araujo, Daniel

PY - 2017

Y1 - 2017

N2 - This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers’probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.

AB - This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers’probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.

M3 - Working paper

VL - 2017-16

T3 - PSE Working Papers

BT - Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior

ER -