The Swedish food retail market : An econometric analysis of the competition on local food retail markets

Sammanfattning: The Swedish food retail market contains of three major actors, ICA, KF and Axfood, all in all dominating 75 percent of the total market shares. The scant number of retailing actors indicates that the Swedish food retail market is a highly concentrated oligopoly, which as a fact has given rise to definite discussions and argumentations concerning the market situation. But is the food retail market imperfect and how do we reach a workable competition? Economic theory does not provide any clear answer on these questions, but is rather divided into two fundamentally different approaches to define competition: the static and the dynamic perspective on competition. In an attempt to examine the competition on local Swedish retail markets, the purpose of this study is to carry out an econometric model estimating the situation. The model serves to explain the variation of ICA’s achievements measured in terms of turnovers obtained in the company. The explanatory variables composing the model are divided into three separate groupings: degreeof market concentration, storespecific factors and region-specific factors. Furthermore, in order to find out which one of the competitive explanations best fits the reality, the regression results are interpreted from a static and a dynamic perspective of competition. In part, we also aim to compare the results with the outline of the Swedish competition law. We found that the level of concentration obtained in our material is high and is steadily increasing. We also found that stores do not, in any great extent, use price, service and quality as competitive methods. Thus, to gain competitive advantage, market actors must find other ways to carry out strategic market activities. The region-specific variables had either none or very little influence on ICA’s turnover. According to these findings, neither the static nor the dynamic perspective of competition is solely able to produce an accurate method for reaching a state of a workable competition. Instead, a combination of the static and the dynamic ideas may be regarded as the most advantageous way to generate suitable conditions for competition to be efficient. Therefore, in order to promote workable competition, the Swedish competition law must consist of a balance between the static and the dynamic view of competition.