Does Market Concentration Promote or Reduce New Product Introductions? Evidence from US Food Industry

Herrmann and Connor, 2000), radio-broadcasting (Berry & Waldfogel, 2001) and music
industries (Alexander, 1997). These studies have yielded a variety of results. While some
studies find that higher market concentration increases product variety, others show that
higher concentration reduces product variety⁴. Hence it is evident that there is little
agreement in the empirical literature regarding the relation between market concentration
and product variety.

This disagreement could be attributed to differences in industry specific
characteristics. Yet surprisingly, the results are varied even for studies on the same
industry, the US food industry. This is more likely to be attributable to the data and
methodological issues. We analyze these issues and address the potential problems in the
empirical literature by estimating the effect of market concentration on new product
introduction using an extensive annual panel dataset for the period 1983-2004 for US
processed food industries while accounting for the endogeneity of market concentration.

The US processed food industry has some special characteristics that provide an
interesting avenue to explore the relationship between market concentration and product
variety. A typical supermarket sells thousands of processed food products, several
thousand new products are introduced every year, and the food processing industry is
getting increasingly concentrated (Sexton, 2000) ⁵.

⁴ Connor (1981), Zellner (1989) and Berry & Waldfogel (2001) depict a positive effect and Alexander
(1997) and Roder, Herrmann & Connor (2000) find a negative effect of market concentration on product
variety.

⁵ www.fmi.org and Progressive Grocer’s 60^th Annual Report (1993) provides statistics on the number of
processed food product carried by the supermarkets. Figure 1 depicts the trend new product introductions.

<<   2   3   4   5   6   7   8   >>

More intriguing information