The names on the outside are different, but most grocery stores are owned by the same companies — yet CTV News shopped around and found they charge significantly different prices for the same items.
This is literally economics 101 for how to maximize profit when you have a monopoly. You find a way to sell the same thing for different prices depending on the customer’s ability to pay
There are some arguments and scenarios which support price discrimination, OP’s article is a prime example. Price discrimination encourages firms to sell more output (at all levels), which enables more customers to purchase goods at each of their willingnesses-to-pay. The natural consequence is, yes, the producer captures more profit. This seems ideal if we are to accept the theory of a capitalist economy.
Monopolies do exert a great deal of control over price and therefore price discrimination to the detriment of the market, but reasonably competitive firms also have some influence over price in ways that are supplemental to the market.
I agree that sometimes there are arguments for monopolies and price discrimination, but I have to respectfully disagree that Canada’s grocery industry is an example of this. There is no natural reason for there to be so much monopoly in Canada, except that our consumer protection and competition enforcement is weak as hell.
Reviewing the article, it describes Loblaw, Sobeys, and Metro as the “three largest” firms accounting for grocery conglomerates, which implies there are other firms in the grocery industry up there. Since there is more than one parent firm, this describes–at worst, an oligopoly. Oligopolies do exert control over prices by virtue of the few suppliers in the market, but their price-setting isn’t monopolistic.
To the first point you’ve mentioned, my argument is towards support of price-discrimination, and not monopolies. The article does indeed demonstrate third-degree price discrimination (same product, different store/market segment, different price), but I did not try to connect these two.
To the second point, the reason for there to be an oligopolistic market is the natural result of an industry that has the kinds of barriers-to-entry that a grocery store seems like it might have: the substantial investment required to purchase the initial inventory, the real estate, and the labor costs.
With respect to Canadian consumer protections, I have no input.
I think you’re overstating the barrier to entry of grocery stores in general. There are small, independent competitors that are able to provide a comparable level of service. Where the big ones win out is their ability to afford extremely large retail spaces for big-box supermarkets which cater to a car-dependant, suburban lifestyle. The flaws of our low-density and inefficient city planning haunt us in numerous ways, one of which is in giving an advantage to businesses which pass the cost of convenient access on to the customer (in the form of requiring them to drive to a sprawling commercial area with a massive parking lot which has been segregated from residential zones).
I say this as someone who never shops at the big supermarket chains, as I live less than 2 minutes’ walk from a neighborhood corner store which sells 90% of the groceries I need. But the sort of walkable, mixed-use neighborhood I live in is basically illegal to build nowadays due to market distortions caused by zoning laws. Zoning laws which are the result of lobbying by suburban housing developers, as well as the fossil fuel and automotive industry.
Because of third-degree price discrimination (not discrimination with the negative connotation).
This is literally economics 101 for how to maximize profit when you have a monopoly. You find a way to sell the same thing for different prices depending on the customer’s ability to pay
There are some arguments and scenarios which support price discrimination, OP’s article is a prime example. Price discrimination encourages firms to sell more output (at all levels), which enables more customers to purchase goods at each of their willingnesses-to-pay. The natural consequence is, yes, the producer captures more profit. This seems ideal if we are to accept the theory of a capitalist economy.
Monopolies do exert a great deal of control over price and therefore price discrimination to the detriment of the market, but reasonably competitive firms also have some influence over price in ways that are supplemental to the market.
I agree that sometimes there are arguments for monopolies and price discrimination, but I have to respectfully disagree that Canada’s grocery industry is an example of this. There is no natural reason for there to be so much monopoly in Canada, except that our consumer protection and competition enforcement is weak as hell.
Reviewing the article, it describes Loblaw, Sobeys, and Metro as the “three largest” firms accounting for grocery conglomerates, which implies there are other firms in the grocery industry up there. Since there is more than one parent firm, this describes–at worst, an oligopoly. Oligopolies do exert control over prices by virtue of the few suppliers in the market, but their price-setting isn’t monopolistic.
To the first point you’ve mentioned, my argument is towards support of price-discrimination, and not monopolies. The article does indeed demonstrate third-degree price discrimination (same product, different store/market segment, different price), but I did not try to connect these two.
To the second point, the reason for there to be an oligopolistic market is the natural result of an industry that has the kinds of barriers-to-entry that a grocery store seems like it might have: the substantial investment required to purchase the initial inventory, the real estate, and the labor costs.
With respect to Canadian consumer protections, I have no input.
I think you’re overstating the barrier to entry of grocery stores in general. There are small, independent competitors that are able to provide a comparable level of service. Where the big ones win out is their ability to afford extremely large retail spaces for big-box supermarkets which cater to a car-dependant, suburban lifestyle. The flaws of our low-density and inefficient city planning haunt us in numerous ways, one of which is in giving an advantage to businesses which pass the cost of convenient access on to the customer (in the form of requiring them to drive to a sprawling commercial area with a massive parking lot which has been segregated from residential zones).
I say this as someone who never shops at the big supermarket chains, as I live less than 2 minutes’ walk from a neighborhood corner store which sells 90% of the groceries I need. But the sort of walkable, mixed-use neighborhood I live in is basically illegal to build nowadays due to market distortions caused by zoning laws. Zoning laws which are the result of lobbying by suburban housing developers, as well as the fossil fuel and automotive industry.
Nice series of comments!
That’s so kind, thank you! I am studying economics and the discussion helped reinforce a lot of fundamental learning.