"The answer is someone would soon make their own store."
I know this isn't the subject of the post, but I am honestly curious if you know anything about how responsive the grocery store market place is or can be in urban areas. It seems like suburban areas respond to profit opportunities by building sprawling stores in empty areas. That's obviously not an option downtown--so how much do incumbent stores face real competition?
This reminds me of my friend who used to live in Texas and work in retail telling me about H.E.B. grocery stores, and how they own 75% of the market in their region by ruthlessly undercutting any incoming competitors. Anytime a competitor opens a store, they slash their prices and take huge losses on milk until the competitor folds and leaves town. It sounds like they don't exercise their monopolistic control to gauge their consumers during normal times, but it was interesting to hear about how these situations might play out in real life.
I'm not entirely sure how responsive the market is per se, but the idea is that grocery stores do face real competition because stores that sell other things could be bought up by or converted to selling groceries if grocery becomes a wildly profitable industry relative to other industries. Now, local regulations (likely lobbied for by grocery stores) might prevent or slow this market flexibility. This is something I'll write about later, but this is where my regulation-skeptic somewhat libertarian worldview comes from. The incumbent benefits most from regulations and extracts economic rents from them.
I think your HEB story proves the example in this case. HEB charges low prices to undercut competitors which is very beneficial to consumers, but they also don't squeeze customers with massive markups in normal times due to the threat of incoming stores and to the cost it would deal to their brand. I'm also sure one reason they control 75% of the market share is that they're most people's favorite store (having lived in Texas for several years.)
Great article, Addison. I learned a lot. I only had to Google one word, and that was Jarritos. :)
"The answer is someone would soon make their own store."
I know this isn't the subject of the post, but I am honestly curious if you know anything about how responsive the grocery store market place is or can be in urban areas. It seems like suburban areas respond to profit opportunities by building sprawling stores in empty areas. That's obviously not an option downtown--so how much do incumbent stores face real competition?
This reminds me of my friend who used to live in Texas and work in retail telling me about H.E.B. grocery stores, and how they own 75% of the market in their region by ruthlessly undercutting any incoming competitors. Anytime a competitor opens a store, they slash their prices and take huge losses on milk until the competitor folds and leaves town. It sounds like they don't exercise their monopolistic control to gauge their consumers during normal times, but it was interesting to hear about how these situations might play out in real life.
I'm not entirely sure how responsive the market is per se, but the idea is that grocery stores do face real competition because stores that sell other things could be bought up by or converted to selling groceries if grocery becomes a wildly profitable industry relative to other industries. Now, local regulations (likely lobbied for by grocery stores) might prevent or slow this market flexibility. This is something I'll write about later, but this is where my regulation-skeptic somewhat libertarian worldview comes from. The incumbent benefits most from regulations and extracts economic rents from them.
I think your HEB story proves the example in this case. HEB charges low prices to undercut competitors which is very beneficial to consumers, but they also don't squeeze customers with massive markups in normal times due to the threat of incoming stores and to the cost it would deal to their brand. I'm also sure one reason they control 75% of the market share is that they're most people's favorite store (having lived in Texas for several years.)