Efficiency vs. market power in retailing: Analysis of supermarket chains

The objective of this article is to analyze the relationship between market structure and performance in the Spanish retail sector. As a new contribution, this paper considers a direct measurement of efficiency, which allows us to test different hypotheses explaining profitability in the generic framework of the theories of market power vs. efficiency. The results of the empirical application on a sample of 147 supermarket chains operating in Spain find that the competitive situation that best characterizes this sector is that of the modified efficient structure. Although efficiency does contribute positively to explaining differences in profitability, market share, which would capture the effect of market power, also has a positive effect. (C) 2008 Elsevier Ltd. All rights reserved.