Public discussions about e-Kalathi often highlight significant price differences among supermarkets and frequently interpret these disparities as evidence of insufficient competition. However, from an economic perspective, directly linking high price dispersion to weakened competition oversimplifies the issue and does not accurately reflect the dynamics of competitive markets.
In theory, price dispersion can arise from several factors, such as product differentiation, cost variations, local demand conditions, imperfect information, and consumer search costs. Behavioral factors, including customer loyalty and consumer inertia, also influence price formation. Furthermore, firms may implement distinct pricing strategies, thereby contributing to observable price differences.
In the case of e-Kalathi, comparisons are made between products with identical barcodes across major supermarket chains, with prices recorded at the chain level. Under these conditions, some explanations for price dispersion are less applicable. Specifically, product differentiation is eliminated by the use of identical barcodes, and local demand conditions or differences in bargaining power among similarly sized chains provide limited explanatory value.
Nevertheless, important economic mechanisms that explain price dispersion remain relevant. Consumer inertia and search costs continue to shape demand behaviour, even as price transparency improves. Although consumers have greater access to price information, they may not always select the lowest-priced options due to habitual purchasing patterns or practical constraints such as time and distance. As a result, the persistence of varying price levels may be attributed to consumer behaviour rather than a lack of competition.
Additionally, consumer loyalty can make demand less elastic for certain supermarkets, allowing them to maintain higher prices without significant customer loss. Firms may also compete differently across product categories, often employing distinct pricing strategies for the overall shopping basket. Changes in supply conditions and periodic supplier discounts further contribute to fluctuations in relative prices among supermarkets.
The dynamic nature of the market also requires careful consideration. The primary economic question is not simply the presence of price differences, but whether published information affects consumer behaviour and firms’ pricing strategies. Observing changes over time in the rankings of the least and most expensive supermarkets offers evidence of dynamic adjustment and active competition in pricing strategies.
It is essential to distinguish between price dispersion and the overall price level. Significant price differences do not necessarily indicate higher prices or reduced competition, particularly if the average price level remains stable or declines over time.
Therefore, although price differences warrant further economic analysis, attributing them directly to insufficient competition is unwarranted without a thorough evaluation of market dynamics, consumer behaviour, and trends in the overall price level.
Dr. Panayiotis Agisilaou
Director | Trojan Economics
Stavros Efthymiou
Associate | Trojan Economics
