Supermarket competition during the price war: The case of Dallas-Fort worth milk market

This paper estimates the effect of a price war on fluid milk supermarket performance in Dallas-Fort Worth. The model is estimated with four-week-ending scanner data from the Dallas-Fort Worth milk market area at the supermarket level. First, a discrete choice model is used to estimate the demand for fluid milk at the brand and retail levels. The demand parameters are then used to estimate the price-cost margins before and during the price war under two pricing conduct scenarios: Bertrand and perfect collusive pricing. The results indicate that the Nash-Bertrand price behavior is preferred to the perfectly collusive pricing behavior. In addition, the price-cost margins dropped during the price war for the private label brands that actively participated in the price war. In fact, the Lerner index for these private label products was negative during the price war, consistent with the loss-leader behavior.