Market Power in UK Food Retailing

Deepening concentration in the food chain throughout Europe suggests antitrust authorities need to be ever vigilant to deter the use of market power. In this article, the authors highlight some of the problems that regulatory authorities face when collating evidence on the existence and use of market power in the food industry, not least the reticence of food suppliers to inform on supermarkets undertaking anti-competitive practices. The article argues that the systematic effects that anti-competitive practices have upon retail and producer prices offer economists the opportunity to detect the exercise of market power in publicly available aggregate data. Drawing on recent research, the article proposes a simple empirical test of the use of market power that is based on economic theory and complementary to extant sources of evidence. While the test does not measure the extent of market power, it does offer a tractable means of detecting its existence. The article summarises the findings from two recent academic papers in which the test has been applied. Results point to the existence of market power in all fresh food products that were assessed, corroborating both the conclusions of the first competition enquiry in 2000 and the recent decision to launch a further investigation into British supermarkets that is due to report in 2007.