MULTIPRODUCT FIRMS PRICING BEHAVIOR IN THE ITALIAN GROCERY TRADE

This paper investigates the determinants of price dispersion between d ifferent goods in grocery retailing, as the result of pricing decision s of multiproduct retailers. Demand parameters are generated using the LES system. These are then used to test theoretical predictions about the nature of supermarkets' pricing and consumers' shopping behaviour using disaggregated data from the Italian grocery trade. The empirica l results concerning the supply function provide evidence for the exis tence, in all types of retail organisation, of a monopolistic form of price discrimination. The results are consistent with discrimination d ue to the exploitation of customers' switching costs.