The Effect of Retail Mergers on Prices and Variety: An Ex-post Evaluation

Abstract

We use an original dataset on Dutch supermarkets to assess the effect of a merger that was conditionally approved by the Dutch Competition Authority (ACM) on prices and on the depth of assortment. We use a difference-in-differences strategy that exploits local variation in the merger's effects. We find that the merger did not affect individual prices but it led the merging parties to decrease the depth of their assortment, thereby reducing consumer choice. This effect is mainly driven by a reduction in variety for the acquired stores after the merger, suggesting that the merging firms reposition their product offerings in order to avoid cannibalization. We also find that the reduction in variety for the merging parties is partially compensated by competitors increasing variety, except in very concentrated markets where all firms decrease variety. The implication of this product repositioning was that average category prices significantly increased following the merger. A simple theoretical model of local-market assortment competition explains most of our findings.