Investigation into Albert Heijn’s dominant market position within Amsterdam and whether it enables them to set prices significantly higher
than its competitors’ Sean Blundell - 10398252 Abstract
With a market share estimated to be around 30%, Albert Heijn is the indisputable market leader of the Dutch supermarket industry. It is a ubiquitous force throughout the Netherlands, especially within the city of Amsterdam, accounting for approximately 65% of all stores within the area. This spatial control, coupled with the evident lack of competition, may enable Albert Heijn to set prices significantly higher than its competitors, especially in those locations where competition is lacking. This study aims to provide evidence into the matter, via the analysis of prices. Over a four-month period, the prices of 35 items were collected from a sample of Albert Heijn stores and two of its competitors, Vomar and Dirk van den Broek. A largely descriptive statistical approach was adopted to analyse the data, with an adjusted Lerner index being utilised as the main method in distinguishing Albert Heijn’s market power. The overall Lerner index was found to be 0.1005, signifying that Albert Heijn does have considerably more market power than its competitors. Further analysis was focused on differentiating between AH’s pricing in locations where there is competition compared to those where competition is absent. Prices were found to be higher in locations without competition, however, this difference was found to not be statistically significant.
1. Introduction
Anyone who has spent an extended period of time in Amsterdam will be all too familiar with the ever-present Albert Heijn (AH). The supermarket retailer founded in 1887, has grown into a distinguished market leader within the
Netherlands, capturing approximately 30% of the market(Loon, 2014). A recent investigation into the Netherland’s supermarket industry by the news
largest cities. Furthermore, it highlighted the fact that for over half of
Amsterdam’s inhabitants (52.8%), AH is their closest supermarket. This was not only the largest proportion of people closest to AH across all the cities, but also the highest amount for any of the supermarkets examined(Loon, 2014).
Albert Heijn is an inescapable presence in the daily life of Amsterdam residents, regardless of their decision to shop there or not. An integral part of the motivation behind this research is the degree of choice available, as it can be posited that the Amsterdam grocery shopper has a very restricted choice set. A quick glance at figure 1 reveals both the abundance of AH stores, and how extensively distributed they are throughout the city of Amsterdam. This makes them the convenient choice for shoppers, as regardless of their location, they can be assured an Albert Heijn is in close proximity. Therefore, due to their
availability and pervasiveness, shoppers are drawn in to AH’s supermarket before prices or product offering come into the decision-making process.
This being said, Albert Heijn does offer a wide array of different products, with most goods being differentiated further with respect to quality. This,
alongside organised and well-kept stores, helps AH provide, on average, a
satisfying shopping experience. But what if you are not a satisfied customer? The most obvious solution is to shop at a different supermarket chain; but this
highlights another issue surrounding the choices available to consumers. Two of AH’s biggest competitors in the Netherlands are Vomar and Dirk van den Broek, whose store locations in Amsterdam are provided in figure 2. Now, when
compared with figure 1, this reveals quite an alarming fact regarding these competitors: that they are far less numerous, and far less evenly distributed across the city. None of the competitors are located within the canal rings, and are both scarcely present in the southern regions of Amsterdam. This leaves Albert Heijn essentially, unchallenged in these areas, while its substantial establishment of stores is likely to deter entry from competitors.
Therefore, if consumers wish to switch away from AH, they are most likely to find it inconvenient to do so. This evidence strongly suggests that AH has a spatial monopoly within Amsterdam. Due to the insubstantial presence of competitors, the market influence they possess is likely to be limited; thus AH’s spatial dominance may translate into a market share dominance. This market
Figure 1: Location of AH stores
Figure 2: Location of Dirk van den Broek & Vomar Stores
share dominance may then enable AH to exploit their position by setting prices higher than they would be under a competitive market setting and also alter prices to the disadvantage of the consumer. Therefore, this thesis aims to provide further information into the potential harmful impact of AH’s powerful position within Amsterdam, via the analysis of prices set by AH, Dirk van den Broek, & Vomar. First-hand data collected over a four-month period will undergo a variety of statistical tests. One of the fundamental tools that will be utilised is an adjusted version of the Lerner index, which will be used as a method of calculating the market power of Albert Heijn. This, along with the additional results generated, should provide an enhanced insight into price competition within the Amsterdam supermarket industry, and more importantly whether Albert Heijn sets prices significantly higher than its competitors. An ancillary enquiry will be made into whether AH’s store prices differ when in the presence of competitors. It is hypothesised that those stores without competition in close proximity will set higher prices than those with local opposition.
The following literature review will provide intrinsic background information that will strengthen understanding and enable an effective
evaluation. Section three will provide a detailed description of the methodology. The results will then be presented and evaluated in section 4. The final section concludes by providing an overview of the results and the key arguments established.
2. Literature Review
A cause for concern that has grown over the last decade has been the increase in market concentration within the supermarket industry (Burt, 2010). This
increased concentration creates the opportunity for supermarkets to develop and strengthen their own brand. Jan-Benedict et al. (1997) analysed Albert Heijn’s own store brand, ‘AH Huismerk’, in relation to the leading national brands. They discovered that as the concentration of the market specific to the product increases, the gap between the brand loyalty of national brands and AH Huismerk increased, corresponding in a higher divergence in prices as well. The reasoning given, is that those products existing in a more concentrated market face less competition, possess more market power and are therefore more able
to set higher prices. This research is corroborated by Connor & Peterson (1992), who use an adjusted Lerner index within an empirical model, to reveal that as market concentration increases, the national brand to private label price margin widens.
Since those studies, however, Albert Heijn’s number of outlets has grown and with it AH Huismerk, which now boasts almost 7000 products (Ah.nl, 2015). Due to AH Huismerk extensive growth and AH’s dominant market position within the Netherlands, it could be argued that AH Huismerk could be perceived as a national brand rather than a private label. An indication of this can be seen in certain product categories (e.g. Coffee), in which AH products score highly on brand loyalty. The market share of AH Huismerk products gives a clearer
quantitative measure supporting this statement. For example, AH Coffee, which has a high brand loyalty, accounts for approximately 15.1% of the total sales in the retail coffee market (Dekimpe & Marnik, 1997). Therefore, if Albert Heijn has been able to transform its private label brand into a recognised national brand, at least for those products competing in a concentrated market, its prices for AH Huismerk goods may be substantially higher than competitors’ private label prices. This feasible position arguably enabled via AH’s overall market supremacy, may be compounded by the high concentration of the overall supermarket industry. This position may also be an extremely profitable one when taking into consideration that supermarkets tend to place higher retail margins on private label products than on comparable national brands (Albion, 1983; Connor & Peterson, 1992). To examine this, this paper will analyse the price margin between selected Huismerk products and competitors’
corresponding private label products.
Despite the long history of spatial competition, with its origin dating back to the pioneering work of Hotelling (1929), little attention has been given to studying competition among firms who are able to set up multiple stores. This is presumably due to the analytical complexities that would arise if it were taken into consideration. However, in reality retailers are able to open multiple branches and a large number do, with those owning four or more outlets accounting for over half the total retail business in the United States (Pal & Sarkar, 2002). The majority of research on the matter has been concentrated on
price competition, which yields the result that firms locate all stores at the same market point (Martinez-Giralt & Neven, 1988). This does not reflect the real world situation accurately, which prompted Pal & Sarkar (2002) to carry out their analysis with firms competing à la Cournot. They found that stores of competing firms might agglomerate at finitely many locations, which is
consistent with the clustering of stores seen in reality. Dasci & Laporte (2004) highlight that operating multiple stores gives firms an instrument to apply a form of price discrimination by setting different prices at different stores. They observe, that a proportion of retailers have systematic price differences among their stores that cannot all be accredited to special offers or sales. This pricing strategy may be utilised by Albert Heijn and is analyzed later on in the paper. Dasci & Laporte go on to discuss that such practices are not vulnerable to legal opposition, as companies can explain their policies by employing various
arguments, such as differences in overheads. Nevertheless, in the case of AH, the issue is not necessarily a legal one but one centered on the welfare of society. If AH is found to be exploiting their market position through setting different prices across stores, attention should be focused on quantifying the social loss it may inflict, and whether it warrants the imposition of additional regulation.
Increased price mark-ups resulting from a higher market share, may however be offset by gains in efficiency from greater economies of scale. As a firm expands and its output increases, it is able to lower its average costs, benefitting from a higher degree of economies of scale. These lower costs
therefore, may be passed on to consumers in the form of lower prices (Dobson & Waterson, 1997). However, numerous studies into the food-retailing sector have challenged this theory, showing that as markets become more concentrated prices do in fact increase (Cotterill, 1986; Aalto-Setala, 2002). Aalto-Setala (2002) examined the concentrated food retail industry in Finland by analyzing data on both supermarkets’ costs and prices. Interestingly, it was found that a large network of stores owned by a retail group, is used as a tool to capture market power and charge higher mark-ups. In addition, both a higher income level and rental price of an area were positively correlated with the mark-up of stores residing in that area. The most significant source of market power in Aalto-Setala’s study was the market share of the firm, while the concentration of
the market was found to be less important. This led to the conclusion that the market power of grocery firms is largely accomplished through marketing and the curtailment of competitor’s presence, rather than through coordination between supermarkets retailers.
An investigation with corresponding objectives and incitement to this research was conducted by Stelder (2012), who examined the existence of spatial monopolies within the Dutch supermarket industry. His analysis was carried out using a Dutch geographical information system (GIS) database that enabled the comparison of the spatial spreading of the population in relation to all supermarket establishments within the Netherlands. An assumption integral to Stelder’s research was that consumers shop most frequently at the
supermarket that is closest to them. If consumers are dissatisfied by this first option, they will then opt for the closest establishment of a different chain. Utilising the average distances to supermarkets and empirical data on shopping behaviour, Stelder formed marginal zones that illustrate a consumer’s
willingness to travel to the closest competitor. This allows him to define a spatial monopoly as the percentage of the population that are unable to reach a
competitor within these marginal distances.
Stelder (2012) divides the existing supermarket chains into four groups and identifies the fourth as being the most relevant, as it only includes those with 5 or more cash registers and excludes discount retailers such as Aldi. This allows the results to focus on those competitors who are the closest substitutes to one another. Concentrating on group 4, it is revealed that Albert Heijn has 36% of all stores throughout the Netherlands, and is the closest supermarket for 36% of the population, with additional emphasis on the far lower shares of the other brands. 16% of the population are locked in a 500m Albert Hein spatial monopoly. Amsterdam ranks second highest for its monopoly score, with 63.4% of the population having AH as their closest supermarket, of which 27% need more than an additional 500m to reach a competitor, with the number rising to 40% for those who require more than 300m. This is clear evidence towards AH possessing a spatial monopoly and supports further exploration into the matter, which this paper seeks to do. A supplementary, but yet significant finding by Stelder is the lack of dominance for the second most prevalent brand, as three
chains occupy the position across the different cities. Once more this indicates AH’s ascendancy in the supermarket industry and the large gulf in prominence between it and its competitors.
An important measure utilized in this research is the Lerner index, pioneered by Abba Lerner (1934) in his seminal paper, The Concept of Monopoly
and the Measurement of Monopoly. Lerner diverted attention away from
monopolist’s profits and towards the allocative inefficiency arising from the pursuit of those profits. The most common method of raising profits is through increasing the price, which causes consumers to redirect their expenditure to different, less satisfactory purchases. This constitutes a net social loss as the loss of the consumer is not balanced by any gain realized by the monopolist. Lerner was the first to recognize that this social loss was not the divergence between price and average cost as originally thought, but the difference between price and marginal cost. This revelation enabled him to construct the Lerner Index, (P-MC)/P, where P represents the firm’s price and MC their marginal costs. It identifies the degree of market power possessed by a firm, with a Lerner Index significantly greater than zero representing a firm that has discretion over its pricing.
The key issue with the Lerner index is the difficulty associated with obtaining the necessary information on prices and costs. This issue can be circumvented however, by using a different, yet equivalent form of the index, 𝑃𝑃 =|𝐸𝐸|1, with E denoting the price elasticity facing the firm (Elzinga & Mills, 2011). The extent to which a firm can capitalize on its market power depends on the elasticity of its demand curve, because as it becomes more elastic, the firm’s ability to raise prices diminishes. However, another issue is that it is a static measure and therefore does not encompass dynamic effects, generated by innovation or technological change for example, which impact on the social optimum. In addition, Lerner assumes that firms have constant returns to scale, so when the index is attributed to a firm with increasing returns, it is misleading to credit the total departure from the social optimum to the exertion of
monopoly power. This should not be a hindrance to this study however, as there is no reason to assume that Albert Heijn has increasing returns to scale, with a study showing that the food retail industry has, essentially, constant returns to
scale (King & Park, 2002). Landes and Posner (1981) highlight the benefits of making explicit use of the Lerner index in antitrust cases, by illustrating how the index brings together factors already widely accepted as indicators of market power. This being said, their results were underpinned by the dominant firm theory, in which the market leader possesses a significantly larger share than its next biggest competitor. Therefore, their findings do not account for
differentiated products or oligopolistic interactions, both characteristics of markets in which market power may be exercised (Elzinga & Mills, 2011). Once again, these pitfalls should not be an issue, as Albert Heijn is the market leader and has a market share far superior than its competitors, which has already been underlined in this paper. Thus, the Lerner index is deemed as an appropriate measure to use in order gauge the market power of Albert Heijn within Amsterdam.
3. Methodology
The prices of thirty-five food products sold by Albert Heijn were collected over a four-month period, beginning at the start of August 2014 and finishing at the end of November 2014. They were recorded every 2 weeks on a Monday, as this was when AH’s weekly bonus deals were initiated. As the bonus deals require AH to make revisions to their prices, it is highly likely that any non-bonus deal price alterations would coincide with this date. By documenting prices on these days it increased the likelihood of capturing any recent price changes implemented. An obvious issue, is the relatively short period of data collection, as, ideally, a longer period such as a year would be used. This would yield data that is more
representative of how AH controls its prices, to illustrate whether they are doing so in a dubious manner. A probable scenario would be incremental increases in price over a longer period, as opposed to large price changes within a small time frame. It should be stated though that the short time period used should not be viewed as a major flaw of this study’s construction, but simply as a possible area for improvement. The main focus of this study is to analyse AH’s prices
compared to its competitors and therefore, the time aspect is not a key factor. By recording prices over time, it does, however, produce results that are more representative and enables the mean to be calculated. Thus, the period used
could be viewed as a strength, rather than a weakness, especially when compared to using cross-sectional data. In addition, there is the view that the degree of monopoly power over a long period is best expressed as an average of the short-term monopolies over the period (Lerner, 1934). This means that the results produced in this study can provide an idea whether Albert Heijn has a monopoly, at least over the short-term, and could possibly not only encourage further research, but be integrated into it.
In principle, the prices of all the food products available to purchase from Albert Heijn should be recorded and taken from every Albert Heijn in the
Amsterdam area that supplies them. In practice, due to the limited resources and time available, this was unfortunately not possible. The thirty-five products used in the sample, were selected to include the most common food categories
purchased by shoppers. This was to make sure that the sample chosen gave a reliable measure of prices, and price movements for a broader range of similar items. For example, the price of AH cola was taken, which might be considered representative of prices for other AH carbonated drinks. Of course, the selection of these representative items is down to judgment, since defining an adequate sampling frame involves difficulties that restrict the use of traditional random sampling methods, when choosing the items adjudged to be representative (Gooding, 2014). A full list of the items that were included in the sample is provided in Appendix 1.
For most types of goods chosen, the prices of two different varieties were recorded; an established national brand and Albert Heijn’s own brand, AH Huismerk. For example, both the price of Kellogg’s cornflakes and AH cornflakes were examined. AH Huismerk products are positioned to achieve market-leading quality at a lower price than the market leader, thus competing with them
directly. This validates a comparison to be made between AH’s pricing of their own goods, relative to the pricing of the independent brands they stock. An additional criterion used in the selection of the products, was to limit the
potential supply factors that could influence price changes. This is most relevant for fruits and vegetables that tend to be seasonal, so those regarded as non-seasonal were chosen, e.g. carrots. This feature should help isolate the cause of any price alterations to AH’s internal strategy, rather than including those forced
by external factors.
The prices were collected from five Amsterdam AH supermarkets, all of similar size, in order to strengthen the internal validity of any conclusions made. The stores chosen were all of the ‘Wijkwinkel’ variety, which fits the typical format of a neighbourhood supermarket, where the majority of daily groceries are purchased. The Wijkwinkels in Amsterdam can vary in size, therefore only the larger stores were chosen for analysis. This was to ensure that all the products under analysis could be found in each supermarket, preventing any discontinuities in the data. Ideally, as mentioned prior, prices from all
Amsterdam AH Wijkwinkels would be collected to produce the most representative data possible.
Albert Heijn prices alone would reveal very little about any existing market power, or the degree of competitiveness in the supermarket industry. Therefore, to provide a reference for the data collected on AH, the prices of identical or similar products supplied by both Dirk van den Broek (Dirk) and Vomar were recorded. Once more, down to the constraints on resources, only two stores of each competitor were used. It should be noted that, although this is a small sample size, the number of stores owned by each competitor within Amsterdam is relatively low: Dirk has 14, while Vomar has seven. To put this in perspective, AH have 54 supermarket stores. Dirk and Vomar were chosen because they are the two most prominent competitors in the Amsterdam region. Discount retailers, such as Aldi and Lidl, were excluded from the study, even though both are well established and popular in the Amsterdam area. The reasoning is that these stores offer a limited assortment of low-priced grocery items, targeting those households with lower incomes, and therefore cannot be considered direct competitors to Albert Heijn. Similar argumentation is behind the factoring out of premium food format stores, such as Marqt.
The Albert Heijn stores chosen were well distributed around the city and capture the major neighbourhoods within Amsterdam. This assists the results in being indicative of the whole city. A supplementary factor considered was the location of competitors. The stores of the competitors’ chosen were in close proximity to a selected AH, and to one another. The other AH’s did not have competitors within close proximity. This construct enables an identification of
whether AH prices differ when in the absence of local competition. This will facilitate important comparisons and will provide a market perspective of AH’s prices. One issue that could negate any findings of this study is if AH prices are found to be constant nationwide. This mean that the prices in an Enschede AH would be the same as the prices in an Amsterdam AH, and for that matter, in any other AH across the Netherlands. This would rule out any exploitation of their spatial monopoly in terms of price discrimination. Appendix 2 provides the details of the supermarkets included in this study.
Once the price collection period was complete, the data was compiled and sorted in preparation for analysis. The average price across time was calculated for each product, within each supermarket chain. Both the average across all locations, and the average price in the individual stores were taken. This allowed not only a general analysis to take place but also an in-depth inspection into the differences across locations. The paper’s aim is to examine AH’s prices in relation to their competitors’ in a general sense rather than adopting a firm specific perspective. Therefore, the assumption is made that the prices of Vomar and Dirk van den Broek are comparable, and correspond more than AH and one of the firms. This allows an average to be taken across the two firms and the formation of the general competition price rate (PComp). These average values
were then used to calculate the margin between Albert Heijn’s prices and the competition’s price. Furthermore, these values were then inputted into an adjusted Lerner Index, where the average price of the competitors was substituted for the marginal cost, 𝐿𝐿 =𝑃𝑃𝐴𝐴𝐴𝐴−𝑃𝑃𝑃𝑃𝐴𝐴𝐴𝐴𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶. This should help reveal the degree of AH’s mark-up over their competitors, which will in turn indicate the market power they possess. The hypothesis is that the Lerner index will be greater than 0. Three different values were determined using the Lerner index. The first utilizes all the data collected; the second is yielded using only the data from AH without local competition; and the third represents the situation where AH does have local competition. To test the statistical significance of the results produced, a Wilcoxon signed-ranks test was performed. This non-parametric test was chosen because it does not assume that an outcome is approximately
normally distributed. As only a small proportion of Amsterdam’s Albert Heijns were investigated, and the fact that they were not randomly selected, makes the
Wilcoxon signed-ranks test a suitable indicator of the statistical significance of this study.
The sample of AH stores were divided into two groups, in order to contrast AH’s pricing strategy within stores that face local competition, to those who do not. Group A was comprised of stores that did not have competitors within a 500-metre radius of them. These stores were located in Overtoom, Sarphatistraat, and De pijp. Group B consisted of those stores that had both a Vomar and a Dirk within a 500-metre radius, which were Oosterpoort and West. An intertemporal analysis was also conducted in order to highlight how prices between locations changed over the research period. For each good the price patterns were compared between the different retailers, and the two AH groups, with specific focus on the direction of the price change. The average change in price from observation to observation was calculated for each product in each location. Two key hypotheses were formed, the first being that those stores in group A would have a larger proportion of positive price adjustments, i.e. more of the goods prices rose over the four month period than in group B. The second is dependent on the direction of the price change, and predicts that group A’s prices will either rise by a greater amount, or decrease by a smaller amount than the corresponding products in group B.
4. Results
An essential aspect of the results that is salient and immediately clear, is that Albert Heijn is the most expensive retailer for thirty-two of the thirty-five
products tracked. In fact, chicken was the only product that was more expensive in the competitors’ stores, with the other two, store brand crisps and a discount milk brand, being symmetrically priced across all retailers. This provides
evidence supporting the claim that Albert Heijn is the most expensive
supermarket in the Amsterdam region. In order to comment on AH’s market power, however, the degree to which their prices exceed their competitors’ needs to be determined. Utilizing data from across all stores that were examined, a Lerner index value of 0.1005 was yielded. It should be recalled that a Lerner index value of 1 represents a monopoly situation, and a value of 0 represents a
market with perfect competition (Lerner, 1934). Therefore, an index of 0.1005 indicates that the supermarket industry market within Amsterdam is much closer to a setting of perfect competition than one with Albert Heijn as a
monopolist. Using the Wilcoxon signed-rank test with a critical value of 1%, the Lerner index value of 0.1005 was shown to be significantly greater than 0, thus supporting the predicted hypothesis. This represents that AH possesses
significantly more market power than its competitors, but the relatively low value indicates that it does not hold a great deal with respect to the general theory behind the Lerner index. This does not paint the whole picture though, as the value must be inspected with reference to the specific characteristics of the supermarket industry before any conclusions can be built. What a Lerner index of .1005 actually reveals, is that AH has the ability to set its prices 10.05% higher than those of its competitors. This value is likely to be regarded in most cases as an insignificant indicator of market power and is more likely to be associated with differences in quality. However, in the supermarket industry, where price-cost margins tend to be low and price competition is a key trait, a 10.05% higher overall price level can be considered as noteworthy.
This difference in price could be due to the fact that AH’s product selection is of a higher quality. This said, approximately 37% of the goods included in the sample were national brands supplied by all the supermarket retailers. The quality of these products is homogenous, regardless of which retailer they are provided by. Of course, over half of the products analysed were private labels, so AH’s higher prices could be explained by a perceived higher quality in those products. However, all the national brands analysed were more expensive in AH than in any of the competitors. To investigate the matter further the price differences between the national brand product and the corresponding private label product were taken and then standardised. On average, the national brand products in AH were 20.44% more expensive than the respective private labels. This was lowest value out of all three retailers, with both Dirk (30.19%) and Vomar (29.87%) having considerably higher price differences. What these results mean is that the price of AH’s private labels are the closest to the price of the national brands, which could be an argument in favour of AH’s product offering being of a higher quality. Whilst a portion of the price differentiation
may be due to quality differences, the evidence presented suggests that the price discrepancies are not completely attributed to this.
The evidence thus far points to AH possessing considerable market power with respect to being able to set an overall higher price level. Nonetheless, in order to make a statement addressing how this market power interacts with their spatial dominance, prices need to be analysed with reference to
competitors’ location. Firstly, the price of multiple products differed between the AH stores investigated. This alleviates the concerns surrounding the possibility of AH maintaining a uniform pricing scheme nationwide. The AH stores were divided into two groups based on the proximity of competitors’ outlets. Those in Sarphatistraat, De Pijp, and Overtoom (group A), were considered to have no competition within close proximity. The other two stores (group B), located in West and Oosterpoort, had both a Dirk and a Vomar within walking distance from them. The prices of nineteen of the products analysed were identical in every AH studied. That group of stores without local competition were the most expensive outright for six of the products. Only three of the products were priced the highest in either of the stores with local competition. The fact that the stores without competition had the larger proportion of higher priced goods aligns with what was expected. As these stores have no competition, they are able to charge higher prices, as consumers have less buyer power through their restricted choice set. The AH on Overtoom ranked top for having the highest number of most expensive products. A plausible reason behind this is that the surrounding area is one of the most expensive neighbourhoods in the city. House prices are strongly positively correlated with income, so this could be an explanation for AH charging higher prices at this location, than when compared to those where disposable income is lower.
Interestingly, the location Oosterpoort, which had direct competition, was the most expensive, or equally most expensive retailer for six of the products. This was not expected and suggests that AH’s pricing strategy may not be strongly related to the presence of its competitors. A possible explanation for this result is that the Oosterpoort store opened a month prior to the start of the research, as part of a new shopping area. This may mean the pricing scheme employed at this location could have been unique to the situation and differed to
those under normal circumstances. Unfortunately, there is no substantial evidence to support this claim, so the result must be taken as a sign against AH price discriminating based on competitors’ location.
However, group B were found to have the highest amount of cheap products. Five of the products were cheapest in either one of the group B stores, compared with only three in group A. These results do give the impression that when AH faces local competition, it sets lower prices than when compared to the situation where competition is absent. This data is not conclusive though, as a relatively large number of the cheapest stores were found to be in group A. This would not be the case if AH were to truly exploit their spatial dominance, as it would be predicted that all goods would be cheaper in the setting of group B. In order to supply more evidence into the matter, the Lerner index was taken individually for both group A and group B. The value yielded for group A was 0.1013, whilst that for group B was 0.0991. This gives a difference of 0.0022, which is positive and therefore in accordance with what was hypothesized. As expected, if competitors are not in the vicinity of AH’s stores, those stores on average will charge higher prices. The reasoning behind this is that those stores possess a greater influence within the market, as competition is diminished and demand is more inelastic, which allows them to set higher prices. Nevertheless, not too much weight can be ascribed to this conclusion, as even though the difference is positive, it is a reasonably small numerical value so prices between the two groups are not too dissimilar. This is compounded by the results of the Wilcoxon signed-rank test, which analysed whether the Lerner index values of the two groups were significantly different from one another. A p-value of 0.552 was yielded, which means that the null hypothesis, stating that both values follow the same distribution, cannot be rejected. It cannot be said, with
statistically significant validation that in locations without competitors AH sets prices higher than those in the vicinity of competitors. Therefore, this suggests that if AH does take advantage of their spatial control within Amsterdam, it is not executed to a great extent.
Supplementary analysis was conducted, which utilised the intertemporal characteristic of the data collected. In Albert Heijn, Eighteen of the thirty-five products’ prices remained constant across all the stores. In Vomar, only fifteen of
the prices remained constant in both stores, whilst Dirk had the largest proportion, with twenty products maintaining the same price over the four months. For those products that did experience some variance in pricing, the majority (eleven) of them changed to some degree throughout all three retailers. This is then likely to be due to supply side factors, such as weather conditions that ultimately affect the quality of crops. However, of those eleven products, the prices only moved in the same direction in all retailers for five of them. This now points to reasons linked to the supermarkets’ own pricing strategies, as if a certain good experienced a systemic change, prices would be expected to move in the same direction. Furthermore, in Albert Hein, 61.11% of the price changes were negative, reflecting a fall in prices. This is surprising, as a firm with
significant market power would be expected to raise prices, rather than lower them. The price alterations were mostly negative for both Vomar and Dirk, with shares of 75% and 53.33% respectively. These results suggest that the
supermarket industry could be more competitive than first thought, as the price patterns of all retailers are congruent. Although, as already stated, this could be largely due to changes in the supply side that impacts the industry as a whole. Unfortunately, this research did not investigate the on-going supply factors and therefore this reasoning cannot be validated.
The price patterns in group A and B were also distinguished and compared, through calculating the average relative change in price for each group. Group B, those with competitors, had fifteen products that underwent price changes, whilst group A had sixteen. The prior, also had the greater
proportion of negative price changes with 73.33%, compared to 62.5% in group A. This corroborates the claim that AH could exploit its market power in certain locations, as when competition is absent, prices are more likely to stay constant or even rise. The absolute values of the average price change for each product were also contrasted between the two groups, with group A having the higher value for 57%. A firm with no competition is expected to be able to change prices by a higher degree, which this result supports. Considering though that the majority of the prices adjustments were reductions, you would expect a firm without the presence of competition to reduce prices by the less. Therefore, the expectation for group A was that a larger share of the price changes would have
a lower absolute value. Hence, this result is misleading. To bring more clarity to the matter, instead of analysing the absolute change, the numerical values including their sign were compared. Group A only had the largest value relative to the price change in 38.88% of the cases, while 27.78% were homogeneous across both groups. This once again does not align with what was expected, as if AH were to capitalize on their spatial dominance, those stores without
competitors in the vicinity should either lower prices by less or increase prices by more.
5. Conclusion
There is little ambiguity surrounding Albert Heijn’s dominance in the
Amsterdam supermarket industry. It is immediately evident from looking at the map representing the locations of each retailer, that Albert Heijn has a clear spatial dominance. This dominance may be a key factor behind the finding that Albert Heijn was the most expensive for roughly 91% of the products analysed. This, combined with the overall Lerner index value of 0.1005, highlights that they are in a position to set prices considerably higher than competitors, especially in the context of the supermarket industry. By comparing the Albert Heijn stores based on their proximity to competitors, it was revealed that those without competitors did price slightly higher than those that had competitors within a 500-metre radius. This result, however, was proven to not be
statistically significant and the conclusion that AH exploits its spatial dominance via charging higher prices where competition is absent cannot be declared. Nevertheless, this does not validate the converse, as a positive difference was still found, which should be a stimulus for further research. A study carried out over a longer period and one that encompasses all the stores in Amsterdam, would yield more representative results and should lead to a comprehensive conclusion.
In addition, although the main hypotheses concerning the behaviour of prices over time were supported, it was not conclusive. For example, for a
variety of products, the magnitude of the fall in price was greater for Albert Heijn than for competitors. However, it was speculated that as price adjustments moved in the same direction across all retailers for a number of goods,
exogenous factors could have had a significant impact. Thus, if further research is to be carried out, it should attempt to incorporate the possible external factors at play.
In summary, although this research has substantiated the evidence that Albert Heijn is the clear market leader of the Amsterdam supermarket industry, no certain conclusions can be made regarding their capitalization on this
position in a pricing sense. Although, the results provide some evidence to suggest that this is the case, they are tenuous and require confirmation in the form of further research.
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Appendix 1: Basket of goods 1. Carrots 500g
2. Medium Onions 1kg 3. Boling potatoes 1kg 4. Tomatoes 500g
5. Small sweet red apples 1kg -
PL
6. Chiquita bananas 1kg 7. Tiger bread whole loaf - PL 8. White bread whole loaf - PL 9. Spaghetti 500g - PL
10. Grand'Italia spaghetti 500g 11. Basmati rice 400g - PL 12. Lassie Basmati Rice 400g 13. Olive oil 500ml - PL
14. Carbonella olive oil 500ml 15. Krokante Four nuts 500g -
PL
16. Creusli Four nuts 500g 17. Cornflakes 500g - PL 18. Kellogg cornflakes 500g 19. Fine grind Coffee 500g - PL 20. Douwe Egberts Coffee 500g 21. Butter (500g) - PL
22. Becel butter (500g)
23. 48+ young cheese p/kg - PL 24. Paprika crisps p/kg - PL 25. Leys paprika crisps p/kg 26. Cola (1.5l) - PL
27. Coke cola (1.5l 28. Heineken 6pack p/l 29. Half-fat milk 1lt - PL
30. Natural Yoghurt (500g) - PL 31. Almhof Natural yoghurt
500g
32. Medium Eggs 6 pack - PL 33. Minced Beef 300g - PL 34. Chicken fillets p/kg - PL 35. Dzh half-fat milk 1lt
Appendix 2: Locations of stores included in sample • Albert Heijn
Cornelis Troostplein 5II 1072 JJ Amsterdam • Albert Heijn
Land van Cocagneplein 1093 NB Amsterdam • Albert Heijn Overtoom 116-124 1054 HM Amsterdam • Albert Heijn Sarphatistraat 141 K 1018 GD Amsterdam • Albert Heijn Kinkerstraat 89 1053 DJ Amsterdam • Vomar Voordeelmarkt Kinkerstraat 34 1053 DW Amsterdam • Vomar voordeelmarkt Waldenlaan 36 1093 NH Amsterdam
• Dirk van den Broek Pretoriusstraat 9 1092 EW Amsterdam • Dirk van den Broek
Bilderdijkstraat 126 1053 KZ Amsterdam
Appendix 3: Tables Table 1 – Average price change every two weeks
