Recipient Organization
ARIZONA STATE UNIVERSITY
660 S MILL AVE STE 312
TEMPE,AZ 85281-3670
Performing Department
(N/A)
Non Technical Summary
Rising food-price inflation inevitably calls the competitiveness of US food retailers into question. However, public policy measures tend to ignore the details of how competition among firms is borne out in practice. Managers in the food retailing sector, for instance, are hyper-focused on competitive strategies on many levels, and consider far more than just the prices and wages that draw policy makers' interests. In the proposed research, we intend to gain a better understanding of some of these strategies and how they could support the objectives of public policy initiatives. Our objectives are to: (1) study how retailers compete in inventories and prices, and how holding higher inventories promotes greater supply-chain resilience; (2) investigate how greater concentration among food retailers may also promote supply chain resilience, as greater concentration promotes closer interaction between food suppliers and retailers and stable oligopolymargins serve as a "shock absorber" that prevents supply shocks from reaching consumers; (3) estimate the competitive impact on sales outcomes of retail partnerships with online grocery delivery platforms and draw competitive implications regarding retailers' reliance on these platforms (as opposed to their own internal resources) to facilitate food distribution; (4) examine the impact on competition, as reflected in prices and profitability, caused by distribution channel relationship asymmetry among rival food suppliers; and (5) synthesize our results to develop a set of solutions. Our research will contribute to theoretical, methodological, and empirical literatures on food distribution, supply chain management, retail markets, agricultural economics, and pricing outcomes.
Animal Health Component
(N/A)
Research Effort Categories
Basic
100%
Applied
(N/A)
Developmental
(N/A)
Goals / Objectives
Our goal is to provide a comprehensive look at how competition among firms in the food industry can lead to economic outcomes, defined broadly, that may be better understood using firm-level data on more granular decisions than in previous research. Understood from the perspective of service quality and resilience, competitive interactions among retailers and their suppliers in this industry may yield different insights than our current modeling approaches. We will draw from several unique firm-level data sources that provide the first opportunity to examine the sorts of firm-level outcomes that are key to understanding supply chain performance in this industry.To achieve our goals, we identify a set of supporting objectives, each targeting a specific issue of the overall problem. Moreover, we will incorporate different methodological approaches and theoretical domains and tools that best address each of the research objectives. Our supporting objectives, divided into the four research stages, are:(Stage 1) - Understand how competitive pricing and inventory policies by food retailers interact to produce economic outcomes that may not be ideally efficient using the traditional welfare measures of price and service quality, but may lead to more resilient food supply chains;(Stage 2) - Develop a set of propositions regarding the drivers of supply chain resilience, to be tested using a new model of resilience and price-transmission in food supply chains, and firm-level data on pricing, supplier relationships, and inventory acquisition;(Stage 3) - Estimate the competitive impact on sales outcomes of a retailer's partnership with a grocery delivery platform and draw competitive implications regarding retailers' use of these platforms (as opposed to using internal resources) to facilitate food distribution;(Stage 4) - Examine the impact on competition, as reflected in supplier prices and profitability, caused by distribution channel relationship asymmetry among rival suppliers. We want to understand how the degree of cross-market dissimilarity in distribution relationships among rival suppliers hinders/facilitates competitive conduct among these firms;(Stage 5) - Synthesize our findings to develop policy and managerial implications to improve competitiveness in the U.S. food system.By addressing these objectives, we will gain a better understanding of the competition dynamics present in the U.S. food system and how they can be managed through the supply chain structures at its core. We will also offer insights on the role delivery platforms play in increasing competition in these systems. In addition, we will provide a better understanding of how concentration in the food retailing sector affects resilience, as reflected in industry prices, and their convergence to long-run equilibrium values. These results will provide a better understanding of the structure of the U.S. food system, its underlying competitive vulnerabilities and the role of structures, supply chains, and technology solutions play in addressing these vulnerabilities.
Project Methods
We will incorporate different methodological approaches and theoretical domains and tools that best address each of our objectives. Our context is unique in the sense that it allows us to draw data from a variety of sources to carry out our research. We use retail data that includes both point-of-sale movement and prices, as well as ordering and inventory records for stock-keeping units (SKUs). We also draw wholesale price information from the Market News Service of the Agricultural Marketing Service of the USDA (USDA-AMS). In addition, we will use data on store sales across categories in markets where delivery platforms (i.e., Instacart) operate and in markets where these platforms are not available.In the first stage, we will use a structural model of spatial competition to examine rivalry and enogenize the joint determination of prices and stock levels. We will also define different periods of disruption to inventory supply in order to model separate stock managementbehavior among retailers.In the second stage, we measure system resilience following failure during a key test: The 2019 Holcomb Tyson meat plant fire. Our approach to measuringresilience focuses on retail and wholesal prices for fresh beefas a key measureable supply outcome.Focusing on prices as our indicator of stability, we define time to adapt (TTA) as a measure of system resilience, following the disruption caused by the meat plant fire. We then estimate a panel smooth transition regression model(PSTR, Hastings, et al. 2022; Ubilava, et al. 2022) that parameterizes the speed at which prices at the retail and wholesalelevels stabilize after the disruption, whether they stabilize at all, the speed that they stabilize, and any factors that may influence the extent and speed of adjustment. Our measure of TTA, therefore, estimates the precise time a system takes to return to its former function and, if prices are lower, improve the efficiency of service provision from a consumer perspective.In the third and fourth stages, we will focus on retail and supplier levels to examine competitive dynamics involving differences in the use of delivery platforms to meet online demand (in the third stage) and suppliers' distribution channels to meet offline demand at retail stores. In the third stage, we use difference in differences (DID) to estimate the effect on retail salesby the use of online deliery platforms and the added competition these platforms bring to the markets where they operate. In the fourth stage,we will first focus on pricing dynamics across suppliers' inventories at retail stores. We will then consider how supplier size and the number of stores where suppliers compete in their markets influence these dynamics. We will then estimate a bargaining model in prices and product replenishment frequency between retailers and suppliers. The goal is to identify the potential for profit creation and allocation in supplier-retailer dyads based on differences in the suppliers' distribution channel relationships.