Multiproduct firms' pricing behaviour in the Italian grocery trade

This paper investigates the determinants of price dispersion between different goods in grocery retailing, as the result of pricing decisions of multiproduct retailers. Demand parameters are generated using the LES system. These are then used to test theoretical predictions about the nature of supermarkets' pricing and consumers' shopping behaviour using disaggregated data from the Italian grocery trade. The empirical results concerning the supply function provide evidence for the existence, in all types of retail organisation, of a monopolistic form of price discrimination. The results are consistent with discrimination due to the exploitation of customers' switching costs.