Quality Competition Between Grocery Retailers: an Empirical Analysis of the St. Petersburg Market

Over the past two decades, the Russian food retail market has undergone significant structural changes. The emergence in the mid-1990s and subsequent spread of retail networks have set the direction for market development and opened up a wide field for research. Currently, there is a lack of studies dedicated to networks in the food retail industry due to their recent entry into the Russian market. In our research, we examined whether the behavior of the food retail market in St. Petersburg is in line with the model of endogenous sunk costs proposed by J. Sutton and empirically proven by P. Ellickson in relation to the US food retail industry. We considered 217 submarkets in Saint Petersburg, representing postcode areas, and the stores of 6 largest chains located in these areas. Using regression analysis, we showed that the increase in market size (the population in the market) leads to an increase in average quality in this market (the average square of shops). Also, with the help of two-stage regression, we demonstrated that in the supermarket market of St. Petersburg a single network does not respond to the improvement in the quality of a competitor by improving its own quality.