How Retailers’ Assortment Strategies and Food Prices Are Linked: Some Empirical Evidence for Germany

Abstract

The economics of grocery retailing is dominated by studies on pricing behaviour and the role of prices for the
competitive position of retailers. Linkages to product policy have rarely been analyzed although the
management literature indicates that an attractive assortment is one of the most important determinants of
consumers’ store choices or even the most important one. Therefore, we raise the question how the retailers’
assortments and their price level are linked. After a literature review on the role of assortments and their
influence on consumers and food prices, we analyze a large dataset for eight major German online retailers and
their whole assortments of foods and beverages. It is investigated whether and how the assortments of online
retailers affect their overall price level for foods and beverages. The econometric analysis reveals that various
indicators of retailers’ product assortments drive the price level: (i) A deeper assortment of an online retailer
raises his price level of foods and beverages significantly. (ii) The organization of the website and, thus,
consumers’ transaction costs, matter too. (iii) There are strong retailer-specific fixed effects on the price level
which may picture further assortment variables such as the breadth of the assortment or the private-label
share.