Big businesses and superstores often strike fear in the hearts of small shop owners. Whenever the economy takes a hit, consumers might be forced to seek the best deal in town, often passing over local stores in favor of less expensive chains.
But instead of lowering prices to lure in bargain hunters, grocery stores are increasing their prices in response to deep-discount membership warehouses like Costco.
A study performed by the National Bureau of Economic Research found that once a Costco is introduced to an area, competing grocers increase prices as much as 1.4 percent in the short run and 2.7 per cent in the long run.
The study’s authors, Charles J. Courtemanche and Art Carden, found that grocers charge higher prices in reaction from Costco’s competition. In cities where the population to grocery store ratio is high, competition is more likely.
Items affected the most in price are fruits, vegetable, meats and drinks. Contending grocery stores could increase the price of those items up to 3.7 per cent more in the long run, according to the study.
San Diego has more than 10 Costco stores across the county. In cities such as Vista and San Marcos that have less than 145,000 residents, neighborhood Costco supercenters could encourage local competitors to increase their prices.
“Costco might capture price sensitive shoppers and leave incumbents to serve shoppers who are less price sensitive,” Courtemanche and Carden wrote.
The authors conclude stating local grocery stores may instead wish to provide a higher quality or convenient shopping experience rather than cater to bargain hunters.
Source – NBC San Diego