Competition in the Swedish grocery market An empirical study using the Boone-indicator

Abstract

Boone (2008) proposed a new way of measuring competition based on relative profit differences. This way of measuring competition has theoretical superior properties than other common measures of competition used today. In this paper Boone’s way of measuring competition has been carried out on the Swedish grocery market where separate local markets have been defined on a municipality level. The Boone-indicator has been estimated for 284 of the 290 municipalities in Sweden between 2004 and 2013. Results suggest that the average level of competition is similar in all population size municipalities where the highest level of competition was observed in municipalities with and average population between 20,124 and 48,408. The lowest competition on average was observed in municipalities with an average population size greater than 48,408. In small size municipalities with less than 20,124 citizens on average, the Boone-indicators vary more. Contradictory to our expectations, the analysis suggest that high population density is in general associated with slightly lower levels of competition where high population densities are mainly associated with greater population size municipalities. Results support that factors affecting competition may be specific to the local markets and the variation in the level of competition observed for municipalities of similar character could not be fully explained by the current analysis. Future research should incorporate analysis of the distance between stores and its’ effect on competition as results may point to this as an important factor in explaining variation in competition.